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Jessica Kerry

Is GLD ETF still a good investment amid the Covid-19 pandemic?

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Hi there,

Just wanted to know if GLD ETF, one of the most popular ETFs has remained resilient during this pandemic season? Is it still a good investment option?

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Posted (edited)

Hi Kerry,
So far, a gold downside has seen protection from Central Banks. They wish to avoid a run on currencies replay. As such, bond purchasing, swap lines, and direct financing, among others, will take place to stop a similar dash for currencies seen in March. 
However, should the pandemic healthcare see an alleviation or get resolved, then all bets would be off. In such a scenario, the market would dump gold and rush into risk assets. A remedy, a vaccine, or the mere lack of a major flare-up, would create such a scenario. 
Gold works as an excellent hedge against risks that have beset the market. Gold represents an avenue for purchasing power protection, an erosion of which was triggered by aggressive central bank monetary easing. It also offers protection against risks arising from the pandemic.
Other, but no lesser, market risks include a simmering China-US trade war, and the upcoming US Presidential election, and associated political risks. When all these market risks are viewed collectively, a position in SPDR Gold shares offers a significant degree of reliability.
GLD is a straight forward ETF product. Bullion is safely secured in vaults. Therefore, ETF prices move in step with spot gold prices.
 

 

Edited by Jeremy

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"GLD is a straight forward ETF product. Bullion is safely secured in vault."

This part is extremely questionable. I recommend doing your own due diligence. Paper gold GLD claims to be fully backed by physical gold bullion but yet it refuses to give retail investors the right to redeem for any of these ‘claimed’ gold bullion. This fact alone would mean GLD shares are nothing more than paper at the end of the day. Furthermore, GLD’s prospectus is chalk full of weasel clauses and legal loopholes that allows the fund to get away without the full physical gold backing. One good example of this is the clause that states GLD has no right to audit subcustodial gold holdings. To this day, I have not heard of a single good reason for the existence of this audit loophole. I’ve also verified the following to be true and welcome everyone else to do the same:

"Did anyone try calling the GLD number for general inquiries at (866) 320 4053 in search of numerical details on GLD's insurance? The prospectus vaguely states "The Custodian maintains insurance with regard to its business on such terms and conditions as it considers appropriate which does not cover the full amount of gold held in custody." When I asked about how much of the gold was insured, the representative proceeded to act as if he didn't know and said they were just the "marketing agent" for GLD. What kind of marketing agent would not know such basic information about a product they are marketing? It seems like they are deliberately hiding information from investors."

"I remember there was a well documented visit by CNBC's Bob Pisani to GLD's gold vault. This visit was organized by GLD's management to prove the existence of GLD's gold but the gold bar held up by Mr. Pisani had the serial number ZJ6752 which did not appear on the most recent bar list at that time. It was later discovered that this "GLD" bar was actually owned by ETF Securities."

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GLD ETFs grant you access to gold price movements without buying actual gold. Structured as trusts, the ETFs represent a particular gold amount per share. Although arbitrageurs adjust tracking prices when ETFs deviate from gold values, the Coronavirus outbreak is challenging this precious metal’s position as a low-risk asset. This is evident in the March dip that occurred alongside other stocks.

As such, central banks may take measures like bond purchasing and direct financing to avoid a similar scenario. That notwithstanding, investors could dump gold for risky holdings when the virus is contained. China-US economy wars and the nearing US election could also affect the market. But all hope is not lost. GLD ETF Bullion is stored in vaults. What’s more, the 0.4% annual fee is friendly to small investors.

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Hi Kerry,

Great question, thanks.

ETFs are a common feature in a trader’s portfolio because of their diversification options. However, ETFs alone cannot resist volatility. This was seen in February’s bear market this year amidst COVID-19. Needless to say, gold has made a name for itself as an investors’ refuge during financial crises.
However, you don’t need actual gold to access this precious metal. Enter gold ETFs. Backed by bullion, these funds constitute a certain gold portion per security. GLD is a good place to start. This company not only tracks gold’s performance with actual bars but also boasts of an attractive 0.4% yearly fee. You’ll be pleased to know the company’s bullion is kept in vaults.
The prevention of a gold dip by central banks also gives GLD an upper hand. That notwithstanding, a pullback may be underway given the fund’s current performance. GLD is already at the three-quarters retracement stage witnessed in the 2011-2015 dive.
This zone may offer resistance, considering the rise from the bottom was corrective. Market participants could also ditch gold for riskier assets when Coronavirus is managed.

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