By Douglas Ehrman
While gold - as represented by the SPDR Gold Trust ETF (NYSEARCA:GLD) - has been a strong performer of late based on a wide variety of factors, there is evidence that the GLD ETF may itself be a driver of the commodity's price. Against this backdrop, considering each of the alternatives to owning gold directly discussed below, will offer a differing risk/ reward profile that may allow you to more precisely target the exposure you want. On the whole, gold looks strong for the next several months, but the specific approach one takes to gaining exposure to the yellow metal will have a significant impact on your results.
The Gold Market
Since Brexit set served as a short-term catalyst to reverse the protracted selloff in gold, factors including global uncertainty over macroeconomic indicators, a dovish Fed, and a weak dollar, the price of gold has been moving higher. In addition to these factors, a recent Zacks article notes that investment and jewelry demand from China and India (505 tons) was meaningfully outpaced by global ETF demand (568 tons). This is an important statistic because it suggests that safe haven demand is one of the heaviest drivers of the commodity price. While I expect that demand to remain strong heading into the fall, this type of surge is more susceptible to a sharp reversal than a more normalized demand driver.
Each of the alternatives discussed below is designed to give you some protection from such a reversal, while still offering meaningful upside from here:
Alternative 1 - Barrick Gold (NYSE:ABX)
Gold prices were off slightly, based on stronger than expected interim jobs data from the U.S. Labor Department. The news resulted is some strength in the U.S. dollar and renewed discussion as to when the Fed will raise rates - all bearish for gold. The news drove shares of Barrick down nearly 6%, giving it an attractive entry point here. Since hitting its low, the stock has rising nearly 150%. While the stock was slumping, Barrick's management committed to cutting the OPEX of the company's production, and as of the second quarter the AISC (all-in sustaining cost) reached $782 per ounce. The company says it plans to this to below $700 by 2019.