Here's Why Gold ETFs Are Hot

Investors have heard plenty about gold and the relevant exchange traded funds this year and with good reason. "Good reason" being the SPDR Gold Shares GLD, iShares Gold Trust IAU and the ETFS Swiss Physical Gold Shares SGOL are each sporting year-to-date gains of just under 18 percent.

A variety of reasons have been cited as catalysts for the 2016 bullion bounce. Negative interest throughout the developed world and the Federal Reserve appearing as though it will not be able to raise U.S. borrowing costs by as much as previously thought are chief among those reasons.

Things are going for well for gold and gold ETFs that GLD is this year's top asset-gathering ETF and iShares, temporarily, had to limit creations of IAU. The $6.04 billion added by GLD is more than double the inflows accrued by the second-best asset-gathering ETF.

Obviously, gold ETFs are loving low and negative interest rates.

Related Link: Bullion And Gold ETFs Get A Boost From The Federal Reserve

"Outside of the US, the yield picture is even worse. Five-year nominal yields in Japan are negative 1.6%, which means that investors are actually paying the government when they purchase Japanese government bonds. The picture is not much better in Europe and helps to explain why gold’s zero yield is no longer a barrier to entry for investors," said State Street Vice President David Mazza in a recent note.

Gold often falls out of favor when investors chase stocks when stocks are hot, but popular equity-based broad market ETFs are dithering this year. Obviously, GLD up almost 18 percent looks a lot better than the 0.9 percent returned by S&P 500 funds.

For gold bugs, there is nothing wrong with safe-haven demand and 2016's market action is, to this pointing, reminding investors of gold's utility. In fact, gold has proven its mettle during market crises ranging from the Soviet sovereign debt crisis to the Long Term Capital Management meltdown to the global financial crisis.

Further boosting the case for gold is weak earnings growth in the U.S.

"Earnings-per-share (EPS) growth for US companies in the years following the financial crisis was on an upswing, boosting equity market returns. In recent months, we have seen EPS growth head into negative territory as a strong US dollar and weak global demand hinder corporations’ ability to drive margins," adds Mazza.

Disclosure: The author owns shares of IAU.