The new strain of coronavirus has necessitated a resumption of lockdowns across the U.K., resulting in a dip in global stock markets. The S&P 500 and Dow Jones Industrial Average have declined marginally over the past five days. While scientists claim the just-released COVID-19 vaccines are effective against the new virus strain, a 70% increase in viral transmission has brought a call for a regional lockdown in most European countries, particularly the U.K. This setback could erase months of progress towards economic recovery; it has caused investors to speculate now on the prospects of “double-dip recession” and a W-shaped recovery.

While the new coronavirus strain has not yet reached the United States, the country is dealing with the economic repercussions of a weakening dollar on top of all else. The proposed $900 billion COVID-19 relief bill signed by the Congress last week is the second largest bailout package in history, following a $2 trillion fiscal stimulus signed earlier this year. Such stimuli in a low-interest rate environment, combined with slow economic recovery, has caused the U.S. dollar to lose some luster (and value).  The U.S. Dollar Currency Index, which tracks the U.S. dollar’s performance with respect to six other global currencies, has declined 7.5% over the past year.

With increasing volatility in financial markets, investors are once again focusing on safe-haven assets to hedge their portfolios. With this, ETFs such as SPDR Gold Trust (GLD), Invesco DB Gold Fund (DGL) and iShares Gold Trust (IAU), which are focused on gold, are expected to gain significantly amid the prevailing market conditions.

SPDR Gold Trust (GLD)

GLD invests directly in gold bullion and is the largest physically backed gold ETF in the world. With $72.76 billion assets under management (AUM), GLD’s prices are adjusted according to the LMB Gold PM price.

It has an expense ratio of 0.4%, which is slightly lower than the category average of 0.45%. GLD has gained 25.1% over the past year, and 5.7% over the past six months. With gold prices appreciating significantly over the past three years, GLD gained 44.3% during this period.

GLD hit its 52-week low of $136.12 in March, owing to the pandemic-driven market correction. As the economic crisis worsened globally over the second and third quarters, with global lockdowns and business disruptions, investors gradually shifted to gold investments to hedge their portfolios against the volatility. Thus, GLD has gained more than 40% since its March lows, hitting its 52-week high of $194.45 in August.

How does GLD stack up for the POWR Ratings?

B for Trade Grade

B for Buy & Hold Grade

B for Overall POWR Rating.

It is currently ranked #6 of 36 stocks in the Precious Metals ETFs group.

Invesco DB Gold Fund (DGL)

DGL invests in gold futures contracts. This ETF allows investors to book higher profits through derivatives trading, by assuming long or short positions based on market movements.  As we expect gold prices to rise in the future, the market is in contango, meaning futures contracts are trading at a higher price compared to the current gold prices. DGL has $115.10 million in assets under management. It closely tracks the DBIQ Optimum Yield Gold Index Excess Return.

Given the higher risks in derivatives trading, DGL has a relative higher expense ratio of 0.75% compared to the category average of 0.45%. However, the ETF’s double-digit price gains offset the higher expenses. DGL has gained 20.8% over the past year, and 23% over the past nine months. Moreover, it has gained 34% over the past three years. DGLS has climbed more than 40% within five months to hit its 52-week high of $60.99 in August, up from its 52-week low of $42.50 in March.

DGL has a consistent dividend payout history also. It pays $0.86 in dividends annually, representing a 1.6% yield at its prevailing price.

DGL’s POWR Ratings reflect this promising outlook. It has a “Buy” rating with a “B” for Trade Grade and Buy & Hold Grade. It is currently ranked #20 in the same industry.

iShares Gold Trust (IAU)

Like GLD, IAU also invests in gold bullion, making it one of the safest investment bets in the precious-metals ETFs space. It is known for its low expense ratio of 0.25%, which is 200 basis points lower than the category average of 0.45%. It has approximately $3.32 billion in assets under management.

IAU has gained 25.8% over the past year, and 24.8% over the past nine months. It has gained more than 40% to hit its 52-week high of $19.76 in August, since hitting its 52-week low of $13.80 in March. Moreover, the ETF has gained 45% over the past three years, reflecting solid long-term bullishness.

It is no surprise then that IAU is rated “Buy” in our POWR Ratings system. It has a “B” for Trade Grade and Buy & Hold Grade. In the Precious Metals ETFs group, IAU is ranked #7

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GLD shares rose $0.03 (+0.02%) in after-hours trading Wednesday. Year-to-date, GLD has gained 22.92%, versus a 16.33% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...

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