Gold Investing: 4 Gold ETFs to Watch in 2016

Gold ETFA Stock Market Crash Could Be Bullish for These Gold ETFs

If you’re looking for a safe place to stash your wealth, then you will want to consider gold exchange traded funds.

Waning investor confidence in the wake of the Chinese market crash sent international markets into a freefall, further fueled by crises in the eurozone, Middle East, and Ukraine, to name a few.

Historically, central banks have dealt with economic collapses with monetary easing. If you recall, major economies slashed interest rates post-2008 financial meltdown. Apparently, something similar has been underway for the last few months. Three of the biggest BRIC economies—Russia, India, and China, all of which are amongst the top hoarders of gold—have started to slash interest rates. Meanwhile, the eurozone and Japan have continued to maintain low rates.

Gold ETFs Are a Smart Alternative to Bullion

Here in the U.S., interest rates have remained low for seven years now. Speculations of a likely monetary tightening were again put to rest when the Fed announced their plan last month to continue pinning the rates at the current low. As expected, gold prices spiked after the announcement.

The inverse relationship between gold and interest rates is easy to understand. While higher interest rates raise the opportunity cost of holding non-interest-bearing commodities, lower interest rates stimulate investor confidence in holding the same.

Consequently, gold is expected to gain investor interest because, 1) it is trading at its five-year low making it a cheap alternative, and 2) the worldwide economic circumstances are pushing investors to seek safer investment havens.

Long story short; spot gold prices are being predicted to head north. A great way to gain exposure to the expected hike without having to store bullion in vaults is to invest in gold ETFs. Investment mavens George Soros and David Einhorn both hold positions in gold ETFs.

Here Are Four Top Gold ETFs for 2016

Gold ETFs are primarily of three kinds: physically-backed, futures-backed, and those backed by gold mining companies. Of the three, physically-backed ETFs have relatively shown the best year-to-date performance followed by futures-backed ETFs. Despite having an upside of lower capital gains taxes, futures-backed ETFs are disadvantaged with higher management fees compared to the passively-managed physically-backed ones. Ignoring the other two less favorable alternatives, I’m going to stick with the physically-backed ETFs for my analysis.

The four most popular gold-backed ETFs in order of decreasing liquidity are SPDR Gold Shares (NYSE:GLD), ETFS Physical Swiss Gold (NYSE:SGOL), iShares Gold Trust (NYSE:IAU) and Merk Gold ETF (NYSE:OUNZ). Here’s a quick comparison of the four.

Expense Ratio NAV Price Value YTD Return
GLD 0.40% $108.41 $106.93 Discount 1.36% (5.74)%
SGOL 0.39% $108.79 109.32 Premium 0.5% (5.82)%
IAU 0.25% $10.93 $10.79 Discount 1.28% (5.59)%
OUNZ 0.40% $11.26 $11.12 Discount 1.24% (6.07)%

In spite of the lower liquidity compared to the popular GLD, IAU is still the most favorable pick of the four. With the lowest fees and comparatively high yield, this ETF is currently trading at a discount of 1.28% from its net asset value.

Bottom line; the yellow precious metal is expected to pop soon. For patient investors looking for long-term high returns and a hedge against economic upheavals, gold ETFs are the way to go.

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