4 Gold ETFs for 2020
When the U.S. dollar loses value, it creates a ripple effect across markets around the world. The prices of some things go up. Some go down. And it almost always creates increased demand for safe-haven investments like gold ETFs.
Now, some courageous investors see a weakened dollar as a time to jump into the markets because it’s shown to lead to a median 2.6% bump in the S&P 500. But when a weak dollar is paired with market volatility, it will almost certainly create a boon for gold bugs.
But again, it’s not just good for those investing in physical gold (which recently hit a record high). It also pushes up the value of gold stocks. And more specifically, gold ETFs.
If you’re not familiar with exchange-traded funds (ETFs), you can check out that link.
But those already familiar with these tax-efficient products have been piling in at a breakneck pace. And for good reason. Inflows into gold-backed ETFs saw a seven-fold year-on-year increase in the first quarter of 2020.
And since then, global gold ETF holdings have hit a new all-time high of 3,621 metric tons, according to the World Gold Council. Collective holdings of gold ETFs now exceed the on-the-books gold reserves of every country in the world except for the U.S.
Increased holdings, rising prices, market volatility and the sagging value of the dollar have led to a groundswell of interest in gold-backed ETFs. But that doesn’t make every gold ETF a good investment…
Portfolio-Stabilizing Gold ETFs
Here are four of the most sound gold-backed ETFs to consider for the remainder of 2020. You’ll also find a bonus gold ETN below.
No. 1: SPDR Gold Trust ETF (NYSE: GLD)
At one point, this was the largest ETF in the world. While it’s since fallen from that top spot, it remains the largest and most popular gold ETF out there. It’s sort of the “gold standard” of gold-backed ETFs. And it’s performing right on pace with the precious metal of the year.
This ETF echoes the performance of gold bullion, with each share representing roughly 10% of the price of an ounce of the shiny metal. And the shares are backed by actual gold bars kept in a secure vault. So this gold ETF makes for a cost-effective way of getting some indirect exposure to everyone’s favorite safe-haven investment.
No. 2 Aberdeen Standard Physical Gold Shares ETF (NYSE: SGOL)
This gold ETF recently caught the eye of momentum investors after it hit its 52-week high. And the Federal Reserve’s continuing to print money while otherwise remaining on autopilot makes for a very friendly environment for this gold ETF.
SGOL has a small expense ratio (only 0.17%) and is organized differently than GLD. While GLD is structured as a trust that merely tracks the price of gold bullion, SGOL uses its assets to purchase physical bars of gold that it keeps under lock and key in vaults in Switzerland and London. Because this offers a true-gold-backed option as opposed to “paper” gold, it’s viewed by some gold bugs as a more legitimate gold investment. Its lower purchase price also makes it more appealing to new investors.
No. 3 VanEck Vectors Gold Miners ETF (NYSE: GDX)
Those looking for a sound investment in gold can also go right to the source. The world’s largest mining corporation, Newmont Corporation (NYSE: NEM) might make for a good investment. Same goes for Barrick Gold Corp. (NYSE: GOLD). Or you could just invest in this ETF, which holds shares of both of these as well as 54 other leading precious metal mining corporations.
Gold mining stocks are outperforming gold on the year. And with momentum on their side, that’s looking to be the case through the end of the year. Because if gold continues its climb, gold miners will be poised to have tremendous upside potential. And while the price of gold is at an all-time high, GDX is nowhere close to its high. And this gold ETF gives investors exposure to some of the top mining outfits in the world.
No. 4 Sprott Jr. Gold Miners ETF (NYSE: SGDJ)
The aforementioned VanEck ETF doesn’t focus solely on outfits that mine only for gold. Many of the larger companies also mine for silver and copper. This makes perfect sense because they have access to the land and materials needed to mine for all sorts of precious metals. Naysayers will argue that VanEck isn’t a pure gold play.
But looking for well-positioned small cap companies that strictly mine gold is tedious at best. This diversified gold ETF takes the research out of the equation. It has 42 holdings in gold stocks with a market cap between $200 million and $2 billion. And its holdings are restructured every May and November to make sure junior gold mining companies with the strongest momentum on their side are included.
No. 5 Credit Suisse X-Links Gold Shares Covered Call ETN (Nasdaq: GLDI)
This is by far the most unique pick of the litter. GLDI purchases physical gold and then sells covered call options to generate income. This index operates by maintaining a long position in shares of SPDR Gold Trust ETF (NYSE: GLD) and sells call options on a monthly basis that are roughly 3% out-of-the-money.
So with a rise in the price of gold, investors can lock in a net gain and premium. While this is a great long play, it can limit the upside if the price of gold soars above and beyond the 3% mark.
All That Glitters…
Choppy markets, a weak dollar and, well, everything else that’s been going on in 2020 have pulled an awful lot of the “smart money” out of the markets. And while a pure play of investing in physical gold scratches the safety itch for many investors, gold ETFs are proving to be an even better way to gain exposure to the momentous run this precious metal has been on.
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Read next: 7 Gold Penny Stocks Worth Owning
About Matthew Makowski
Matthew Makowski is a senior research analyst and writer at Investment U. He has been studying and writing about the markets for 20 years. Equally comfortable identifying value stocks as he is discounts in the crypto markets, Matthew began mining Bitcoin in 2011 and has since honed his focus on the cryptocurrency markets as a whole. He is a graduate of Rutgers University and lives in Colorado with his dog, Dorito.