With gold flirting with record prices, exchange traded funds, including the VanEck Merk Gold Trust (OUNZ), are receiving renewed attention.
Gold’s participation in this year’s commodities rally is important because it renews investors’ faith in the yellow metal after it disappointed in 2021 even as the broader commodities complex surged.
Bullion’s 2022 bullishness also reminds investors that gold is still a viable inflation-fighting investment and that it is worth looking into against the backdrop of geopolitical conflict as is happening today in Eastern Europe.
After gaining 2.73% on Tuesday on volume that was more than seven times the daily average, OUNZ is up 4.58% over the past week, 9.17% year-to-date, and is flirting with record highs of its own. Compelling as those traits are, those aren’t the only reasons to consider the ETF today.
“Gold ETFs trading in the US, which manage $105 billion of assets and cost 0.25% on average. We calculate the correlation of gold ETFs to the gold price, which highlights a correlation of almost 1 for all 11 ETFs in our universe,” notes Nicolas Rabener of Factor Research. “In contrast to oil ETFs, an investor can use these instruments for getting exposure to gold with fewer concerns. Some of these are also backed by physical gold rather than gold futures, which likely creates additional comfort to investors seeking an easy and economical way to invest in the metal.”
In other words, investors looking for an individual commodity exchange traded product with strong correlations to the spot price of the underlying commodity can do a lot worse than a gold ETF like OUNZ.
The $654.4 million OUNZ has a correlation of 0.98 to spot gold prices, according to Factor Research. That’s in line with the bulk of the physically backed gold ETF category.
“The high correlation of gold ETFs to the gold price is reflected in the performance of the ETFs and the commodity being indistinguishable in a chart, as seen below. Given this, an investor can focus on the liquidity of the ETF as well as management fees, which range from 0% to 0.77%, when selecting an instrument,” concludes Rabener.
OUNZ charges just 0.25% per year, which is inexpensive when considering that investors can take physical delivery of gold when redeeming shares of the fund.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
