Gold Moves To New Highs- Three ETFs To Consider (NYSEARCA:GLD)

For thousands of years, gold has been a multi-purpose metal. It has been a means of exchange or money, ornamental as people adorn themselves with gold jewelry and an industrial metal with properties for various applications.

Gold predates the Bible’s old testament. Gold is a critical financial asset. Central banks and governments validate gold’s role in the financial system as they hold the metal as an integral part of foreign currency reserves.

The last government to doubt gold’s value got burned. At the turn of this century, the United Kingdom decided to part with one-half of its gold reserves. Ironically, London is the hub of the international gold market, so the UK sent a signal that gold had seen better days. In a series of auctions, the UK sold around 300 metric tons at prices mainly below the $300 per ounce level. Since 2003, gold never traded below $300 per ounce. Since 2010, the price has not ventured below $1,000, and since 2020, the price has remained above $1450 per ounce.

Gold reached its all-time high in August 2020 at $2,063 per barrel. After correcting to a low of $1673.30 one year ago in March 2021, gold was back at the $2000 level this week. The price looks set to surge to new record highs. While the most direct route to investing in gold is via the physical market for bars and coins, the GLD, IAU, and PHYS products provide gold exposure for investors and traders in their stock portfolios without owning the physical metal.

Gold broke out of the wedge pattern to the upside

After rising to a new all-time high at $2,063 per ounce in August 2020, gold digested the move and corrected lower, reaching a low of $1,673.30 one year ago in March 2021.

The weekly chart highlights the pattern of lower highs and lower lows that took the precious metal to the $1,673.30 low. Over the past year, gold began making higher lows, creating a wedge pattern. Last year, gold traded within the 2020 range, not making a higher high or a lower low. The narrowing trading range was a sign that a significant move was on the horizon, and gold did not disappoint. In mid February, the move above $1,879.50 broke the pattern of lower highs, and gold took off on the upside.

Inflation and geopolitical risk – A bullish cocktail

Rising prices throughout 2021 indicated increasing inflationary pressures. Inflation erodes money’s purchasing power. In 2021, while gold consolidated, many other commodity prices continued to rise, with many reaching multi-year or all-time highs. For most of last year, the US Fed, Treasury, and many government officials blamed inflation on pandemic-inspired supply chain bottlenecks. As the consumer and producer price indices rose to the highest levels in over four decades, the consensus shifted from “transitory” to structural inflationary conditions. The central bank rolled out plans to address inflation by tightening credit. However, the central bank remained far behind the curve in addressing the economic condition.

A geopolitical storm developed as the Fed tapered asset purchases and prepared to increase the Fed Funds rate at this month’s FOMC meeting. On Feb. 4, 2022, Chinese President Xi and Russian President Putin met at the opening ceremonies for the Beijing Winter Olympics. The leaders shook hands on a $117 billion financial package, but more significantly, they agreed to mutual “no-limits” support. Less than three weeks later, Russian troops invaded Ukraine, launching the first major war on European soil since WW II.

Russian leader Vladimir Putin does not consider Ukraine a country. He has stated that Ukraine is Western Russia. The US, Europe, allies, and Ukrainians consider Ukraine a sovereign Eastern European nation. Meanwhile, China considers Taiwan a rogue Chinese territory, and Russia’s invasion of Ukraine could set the stage for the Chinese government to do the same in Taiwan.

At the risk of starting a wider conflict involving nuclear weapons, the US and Europe have responded with financial sanctions and equipment support for Ukraine. Russia has warned the US and Europe to stay clear of the war.

The bottom line is that gold is a barometer for inflation and geopolitical tensions. On Tuesday, March 8, gold rose to a new nominal record high.

The semi-annual chart shows that on March 8, gold eclipsed the August 2020 high, rising to $2,078.80 per ounce.

In 1999, gold reached a bottom at $252.50 per ounce. Since then, each price correction and consolidation period has been a buying opportunity in gold. The over two-decade-long bullish trend continues to take gold to higher highs.

Gold is the longest-standing means of exchange. As Russia faced sanctions last week, the central bank began buying gold from domestic producers to bolster its economy. The deal with China is likely to avoid sanctions via Chinese technology by using gold as a trade tool.

The most direct route for participating in the gold market is via physical coins and bars. At least three products that trade on the stock exchanges offer unleveraged exposure to gold.

GLD is the most liquid ETF

The SPDR Gold ETF product (GLD) is the most liquid gold ETF, with each share reflecting one-tenth of an ounce of gold. At the $190 level, GLD had $67.677 billion in assets under management. Nearly 17 million GLD shares change hands on average each day, and the ETF charges a 0.40% management fee.

As the chart shows, since February 24, GLD rose from $175.27 to $193.30 per share or 10.29%, as GLD did an excellent job tracking the gold rally.

The fund summary describes that GLD holds physical gold bullion.

IAU is one-tenth the size of GLD

The iShares Gold Trust (NYSEARCA:IAU) reflects the price action of 1/100th of an ounce of gold. At $38.63 per share, IAU has over $32 billion in assets under management and trades an average of 21.9 million shares each day. IAU charges a 0.25% management fee.

Since Feb. 24, IAU rose from $35.70 to $39.36 per share or 10.25% as it slightly underperformed GLD and gold futures. IAU’s fund summary says:

IAU holds physical gold bullion.

PHYS is another option

The Sprott Physical Gold Trust (NYSEARCA:PHYS) is a closed-end mutual fund trust registered in Canada. At $15.79 per share, PHYS had around $5.783 billion in assets under management and trades an average of over 4.48 million shares each day. PHYS charges a 0.51% management fee.

PHYS appreciated from $14.71 on February 24 to $16.20 on March 8 or 10.13%. The fund summary states:

PHYS also holds its assets in physical gold bars.

GLD, IAU, and PHYS are all as good as gold when tracking the metal’s price in the futures market. However, the only way to have a guaranteed 100% exposure to gold is to own the physical metal and keep it in your possession. For over two decades, every correction in the gold market has been a buying opportunity, with the latest new high coming on March 8, 2022. While gold could correct over the coming days and weeks, the path of least resistance remains higher, and the upside breakout from the wedge pattern points to higher highs over the coming weeks and months.

Meanwhile, the US dollar has rallied over the past weeks, meaning gold is rising in all currencies, a sign of underlying strength for the precious metal.