Gold Just Hit An All-Time (Nominal) High—How To Play The Trade With ETFs

Gold bugs who were in front of their screens on Sunday night witnessed history for the second week in a row.

At the 6 pm ET open on August 2, the spot price of gold rose to $2009.50 per ounce, a new all-time high on a nominal (non-inflation adjusted) basis. It was the second week in a row that gold made a new all-time high in the Sunday night session, as the same thing happened the evening of July 26.

Spot gold is up almost 36% over the previous 12 months, a stunning turnaround for an asset that drastically underperformed equities for the last decade. For those investors who stayed the course and the traders who’ve been betting on upside, Sunday night was validation.

So why did gold just make a new all-time high? It’s 2020—the real question is why not? The safe-haven asset has the benefit of several macro tailwinds playing out at the same time.

The EU’s record-breaking $858 billion bailout package combined with near-zero interest rates from global central banks has signaled that monetary easing and fiscal stimulus will be more than a short-term reality. At the same time, rising tensions last week between the U.S. and China has set the stage for another geopolitical showdown, which carries with it far more unknowns than any market (or person, for that matter) should be comfortable with. And all this is to say nothing of the fact that coronavirus cases continue to rise in the U.S.

How To Play Gold Via ETFs

As gold has ascended in recent months so too have gold ETFs, as many traders and investors use them to get exposure.

According to the World Gold Council, gold-backed ETFs added $5.6 billion worth of assets in June, their seventh consecutive month of global positive flows. And based on July’s performance, that streak could continue.

Take the two largest gold miners ETFs by assets: the VanEck Vectors® Gold Miners ETF GDX )) and the VanEck Vectors® Junior Gold Miners ETF GDXJ )). The pair has returned 42% and 38% respectively in 2020, as of August 3.

The chart below shows the year-to-date performance of GDX (candles) compared with GDXJ (purple line).

Source: Benzinga Pro; Data as of August 3, 2020

The strength in GDX can be attributed to names like Newmont Corporation NEM, Barrick Gold Corp GOLD, Franco-Nevada Corp FNV, and Wheaton Precious Metals Corp WPM. Combined, the group makes up over 38% of the fund and is up an average of 60% year-to-date.

Meanwhile, the strength in GDXJ can be attributed to top holdings Gold Fields Ltd GFI (up 98% YTD), Kinross Gold Corp KGC (up 97%), and Yamana Gold Inc AUY (up 64%), which combine to make up nearly 17% of the fund.

For investors interested in gold bullion, the VanEck® Merk® Gold Trust OUNZ actually allows investors to own physical gold via their ownership of the ETF and even take delivery of the gold they own, if desired. Note that taking delivery of gold does come with a fee.

In short, market risk is very much on. And when risk is on, so is gold.