Why Investors Are Rushing to Gold

Gold prices hit their highest levels in 14 months on Friday as traders and investors aggressively increased expectations that the US Federal Reserve Bank may cut short-term interest rates this year. Investors are increasingly nervous that the US economy is slowing down as President Trump presses ahead with his trade war against China and Mexico. A weak jobs report for May added to investors’ fears by creating just 75,000 jobs compared to economists’ expectations of 180,000 for the month. The report showed that the US labour market’s health could be starting to deteriorate, and this sent investors to safe assets like gold, which is up 6.88% in the last six months.

Gold Related ETF’s Also Benefit

One-way retail investors can invest in gold is with Exchange Traded Funds, or ETFs. For example, the SPDR Gold Shares ETF (AMEX: GLD) reflects the performance of the price of gold bullion, less the Trust"s expenses. This ETF is up 6.6% in the last six months, which is not too far off the performance of the underlying physical asset. Investment returns are solely dependent on price appreciation, as gold does not pay dividends or interest.

Other investors may not want such direct exposure to the commodity itself and would be more comfortable investing in an equity basket of gold miners or gold explorers. Two ETFs that might suit these investors are the VanEck Vector Gold Miners ETF (AMEX: GDX), up 13.22% in the last six months or the Global X Gold Explorers ETF (NYSE: GLDX). According to VanEck, the GDX ETF seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the NYSE Arca Gold Miners Index, which is intended to track the overall performance of companies involved in the gold mining industry. The ETF has a dividend yield of 0.46%, which could be more attractive to an investor seeking some income from gold-related investments.

Bottom Line

Investors have started to climb the wall of worry and a slowing US job market and falling US long-term bond yields are pushing nervous investors to safe assets like gold. There are different investment vehicles available for investors to diversify their portfolios and participate in the gold rally that is currently underway. For investors not comfortable with direct exposure to the commodity’s price moves, an equity basket of gold mining or exploration companies might be a better way to play it.

Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.