The yellow metal is getting a green light.
After five years of being stuck in a trading range, gold prices have broken out in the last six weeks, igniting a rally to multiyear highs. Prices held near those highs Monday as investors awaited word from the Federal Reserve about whether the central bank would cut interest rates at its next meeting.
Better yet, with the Fed’s decision on deck, billionaires like Ray Dalio pounding the table and concerns about a global economic slowdown still gripping investors, experts see cause for gold’s run to continue.
“There’s three reasons” for why gold has popped in the last several months, said John Davi, founder and chief investment officer of Astoria Portfolio Advisors.
“One is you’ve got recession risks that have gone up. Two, you’ve had rates that have been trending lower,” he said Monday on CNBC’s “ETF Edge.” “And the third reason, if you look at 10-year real yields, [they’ve] gone from 1.2[%] to 25 basis points.”
These catalysts are all making owning gold quite cost-effective, said Davi, whose firm leverages ETFs in managing its clients’ portfolios.
“Overall, I think it doesn’t cost you a lot to own gold as rates go lower,” he said. “It helps diversification. It helps multi-asset portfolios. Since March 2009, [the] S&P ’s up 400%. Gold’s up, like, 50%. GDX [the VanEck Vectors Gold Miners ETF] is down 10%. So, I think the risk-reward is pretty attractive. “
Dave Nadig, managing director of ETF.com, agreed that gold investments appear to be getting their groove back.
“We’ve had this sustained down market in gold miners’ stocks,” he said in the same “ETF Edge” interview. “That gave them the opportunity to close underperforming assets, to do some industry consolidation, which we’ve seen, and so we just had a technical breakout in GDX. This is something traders really pay attention to, so that puts a lot of tail wind behind this. I think either [the SPDR Gold Shares ETF] or GDX are a good way to play a sustained rally in gold. “
For retail investors looking for a cheaper play than the SPDR Gold Shares fund, ticker GLD, which costs 40 basis points, Nadig offered another option: BAR, the GraniteShares Gold Trust, with a fee of 17 basis points for “the exact same exposure” as GLD, he said.
“It really just comes down to cost. Both of these are funds that simply take gold bars and stick them in a vault,” Nadig sad. “If you’ve got to day trade this, if you need to put 100,000 shares through fast, GLD, of course, is going to be your institutional favorite. If you’re a normal investor, you might be making a 5% allocation on a million-dollar portfolio, BAR is your bet all day long.”
GLD and BAR were flat by the end of Monday’s trading session and are both up about 11% year to date. GDX, which has notched a nearly 34% gain this year, climbed by less than 1%.