Four ETFs To Cash In On Gold’s Rally

According to a poll amongst analysts, bankers and producers at the world’s largest gathering of the gold industry, the shiny metal is expected to reach $1,450 per troy ounce this year, providing positive price support to the SPDR Gold Shares ETF (GLD), the iShares Gold Trust (IAU), the PowerShares DB Gold Fund (DGL) and the ProShares Ultra Gold (UGL).

One driver behind gold’s expected increase is the fact that numerous central banks are utilizing it as a monetary asset.  Nations such as Russia, China, India and the Philippines, who have traditionally been known as net sellers of the precious metal, have all recently increased their gold holdings to shore up their balance sheets and protect against the potential of a falling dollar.  As a result, these nations are now net purchasers of gold, which is further bolstering demand. 

A second driver supporting gold is the overall fear of a potential double-dip recession in the United States continues to prevail.  In fact, the Conference Board recently reported that its index of consumer confidence fell to 48.5 in September from a revised 53.2 in August, primarily driven by a weak job market and concerns that the job market will fail to significantly improve.  Traditionally, a declining trend in consumer confidence indicates weaknesses in consumer buying patterns, which could be detrimental to overall US GDP growth as that consumer spending accounts for nearly 70 percent of the US economy.

Furthermore, fears of further monetary easing by the US Federal Reserve to further stimulate its economy are providing positive support to the precious metal.  The Fed continues to keep interest rates at near-record lows, and is likely to continue to do so for the remainder of the year, and could potentially further boost money supply.   These policies are likely to lead to inflation and a weaker US dollar. 

Lastly, gold appears to be trading much lower than its inflation-adjusted 1980 prices indicating that there is plenty of upside potential in the metal.

In a nutshell, the overall outlook on gold remains bullish and is expected to remain so in both the near future and the long-term.  As noted earlier, some easily accessible ways to play gold include:

  • SPDR Gold Shares ETF (GLD), which is the most commonly traded gold ETF
  • iShares COMEX Gold Trust (IAU), which is backed by physical gold bullion
  • PowerShares DB Gold Fund (DGL), which holds futures contracts in gold.
  • ProShares Ultra Gold (UGL), which is a leveraged security that seeks to replicate twice the performance of gold bullion

Disclosure: Long GLD

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