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The Weak Gold Price Makes This ETF A Good Value

By (Tezcan Gecgil/ )ETFsApr 12, 2021 12:35
The Weak Gold Price Makes This ETF A Good Value
By (Tezcan Gecgil/ )   |  Apr 12, 2021 12:35
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Despite the significant run-up in prices of many commodities, gold has had a lackluster year so far. It started 2021 around $1,900/oz. and is currently lower, just shy of $1,745.

That's a far cry from its intraday record-high of almost $2,075 seen in August 2020. At the time, market volatility catapulted gold into the limelight for its safe haven status, and the yellow metal's performance outstripped the returns of the technology-heavy NASDAQ 100 index. But since then, gold has given back most of the impressive gains. The return over the past 12 months is, in fact, close to just 3%.

Given the up move in the price of gold since March, market participants wonder whether Q2 could be an opportune time to buy the shiny metal. We're currently bullish on gold (as well as silver, which we'll cover in a separate article soon) for the rest of the year. Among other factors, rising inflation could be a catalyst for a long-term upside.

Gold Futures Weekly
Gold Futures Weekly

There are different ways to invest in gold, starting with buying the physical bullion. Gold’s investment case is rooted in the history of humanity. Ancient civilizations used the metal in jewelry and coins. The special characteristics of the metal make it difficult to counterfeit, but relatively easy to transport. Therefore, many cultures regard it as an important store of wealth. In the US, most financial planners would recommend allocating around 5% of a long-term portfolio to gold.

The other way to invest in gold is via exchange-traded funds (ETFs). Therefore, today’s article introduces an ETF for gold bulls who might want to bet on a continued upward trajectory in price.

iShares Gold Trust

  • Current Price: $16.61
  • 52-Week Range: $15.94 - $19.76
  • Expense Ratio: 0.25%

The iShares Gold Trust (NYSE:IAU)) provides exposure to the daily movement of the price of gold bullion. The fund started trading in January 2005, and net assets stand at $28 billion.

IAU Weekly
IAU Weekly

Since the start of the year, IAU is down almost 8%. For those investors who believe the fundamental backdrop is supportive of gold, the fund could provide a convenient way to access gold.

From a technical perspective, the $17.5-level may act as resistance in the coming days and IAU could trade between $16 and $17. If the bulls have the upper hand, then $18 may well be the next target. Options on IAU are also available that could help some put together more sophisticated strategies.

On a final note, we need to remind readers that the ETF will implement a 1-for-2 reverse stock split on May 24. At the time, this reverse stock split will increase the share price and decrease the number of outstanding shares. However, for investors, the total value of shares outstanding and the total value of the investment will not be affected.

There are two other similar ETFs that could appeal to investors. They are the SPDR® Gold Shares (NYSE:GLD) and the SPDR Gold MiniShares (NYSE:GLDM). Year-to-date (YTD), they are also both down around 8%.

Bottom Line

The past several months have been frustrating for gold bulls. But we believe Q2 might be a good time to increase exposure incrementally as the price of gold is likely to have made a short-term bottom in March.

Owning some gold through miners is another way to stay ahead of the curve. As the price of the yellow metal rises, miners' margins generally improve, and profits increase.

Potential investors should look for companies with a strong asset base, experienced management, and a robust balance sheet. Names we like might include:

  • Barrick Gold (NYSE:GOLD) — down 6.9% YTD;
  • Kinross Gold (NYSE:KGC) — up 0.9% YTD.
  • Newmont (NYSE:NEM) — up 2.7% YTD;
  • Wheaton Precious Metals (NYSE:WPM) — up 0.7% YTD.

We have to remind readers that miners tend to overshoot the price action in the metal, both to the upside and the downside. Thus, prices of mining stocks can typically turn around in a hurry.

Finally, there are ETFs that invest in various miners, such as the VanEck Vectors Gold Miners ETF (NYSE:GDX) or the VanEck Vectors Junior Gold Miners ETF (NYSE:GDXJ). Year-to-date, they are down 3.6% and 10.3% respectively. We plan to cover these funds in the coming weeks.

The Weak Gold Price Makes This ETF A Good Value

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The Weak Gold Price Makes This ETF A Good Value

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Comments (1)
Oc Masai
Oc Masai Apr 13, 2021 19:35
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Good job Gold. Thanks you ms Tezcan
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