Gold ETF – Get ready for the next leg up?

Gold price has been range bound since it made a short term peak in 2011. The lagging performance can be attributed to the pull back in the Fed QE program and improving economic backdrop. Some can see it has a period of consolidation until the next leg up.

Gold ETFs are funds that hold gold. They will track the movements in the price of gold directly and it allows invstors a cheap and liquid way of getting exposure to gold. There are a number of Gold ETFs investors can use however there are 2 funds which dominates the sector.

Gold ETF List

1. SPDR Gold Shares (GLD)

2. iShares Gold Trust (IAU)

3. Physical Swiss Gold Shares (SGOL)

 

Both of these are physical gold ETFs which means that underlying asset in the fund is a claim on the physical gold. SGOL differentiate it self by holding the physical gold in vaults in Switzerland. Theses Gold funds do not invest in gold commodity futures like the Crude Oil ETF or Leverage gold ETFs like 3x gold ETFs.

Gold investors looking at the chart of Gold ETF are asking the question can the gold price revert to 2009 levels? Cost of producing one ounce of gold has been gradually creeping up for all the major gold minders. This should provide a floor if the price declines further. The risk is that like any markets gold price could overshoot on the downside. Especially if the US dollar rally continues.

Investors that are looking for gold exposure with dividends should look to Exchange Traded Funds that invests in gold miners.

Gold to Silver Ratio – Contrarian Viewpoint

One way of measuring the relative value of gold aside from it being priced in US dollar is looking at the ratio of gold to silver ratio. This ratio is determined by dividing current price of gold with the silver price. The chart below from Macrotrends.net shows this ratio over last 8 decades.

Currently the ratio is elevated which means that gold is expensive to silver. If investors are trading this ratio, they should sell gold and buy silver. One should also note that in the late 1980’s the ratio can get more expensive, even touching the 100 level.