In life, the value or cost of some things may rise in tandem either with or in the opposite direction of the change in the value or cost of other goods.
One such precious metal that favors the second trajectory is gold. Indeed, while not a rock-solid economic rule, in general, during times of inflation, geopolitical risk and/or a weak dollar, the price of gold tends to rise. During times of deflation, global stability and/or a strong dollar, the price of gold tends to fall.
As uncertainty reigns about whether the Federal Reserve will pause its dogged determination to continue to hike interest rates, the price of gold has reflected that sentiment. On April 18, Reuters reported that the price of gold had breached the $2,000 level, a key metric that points to anticipation regarding the possibility of rate cuts by mid-summer.
While anyone who subscribes to any of my trading services (and if you haven’t, you should) knows that I always advocate dedicating part of your portfolio to gold, I am always looking for ways to invest in gold without holding the actual metal, which is heavy, bulky and hard to insure.
Enter the Aberdeen Standard Physical Gold Shares ETF (NYSEARCA: SGOL), an exchange-traded fund (ETF) that tracks the price of physical gold. This ETF seeks to replicate the performance of the price of gold bullion, net of expenses, creating a fund that appeals to investors who are looking for a simple and easy way to invest in physical gold without having to own the actual metal.
The good news is that SGOL’s decision to only invest in physical gold, rather than gold futures or something similar, precludes exposure to the higher level of risk contained in futures contracts. In addition, the physical gold holdings in the fund are audited twice a year by a third party, providing investors with reassurance that the fund’s managers won’t engage in risky investment adventures with the fund’s assets.
The flip side of all of this is that, as I said above, the price of gold is highly dependent on external factors and can change sharply, without warning. Since this fund is entirely focused on gold bullion, rather than mining stocks or gold futures, a drop in the price of gold can cause a sharper drop in the share price of this ETF than in the share price of similar gold-based ETFs.
Similarly, the fact that gold bullion does not generate any income on its own is reflected in the fact that SGOL does not pay dividends. So, income investors who are interested in precious metals might want to look elsewhere for their dividend needs.
As of April 18, 2023, this fund has been up 1.37% over the past month, up 5.27% over the past three months and up 9.85% year to date.
This ETF has total net assets of $2.74 billion and an expense ratio of 0.17%.
While SGOL is a far simpler and less costly way for investors to gain exposure to physical gold, investors should be aware of the risks associated with investing in gold and always do their due diligence before adding any stock or fund to their portfolio.
As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You may just see your question answered in a future ETF Talk.