ETF Plays For $3,000 Gold

by on September 17, 2009 | Updated November 9, 2009 | ETFs Mentioned:

The Gold Rush of 2009 likely hasn’t come as a complete surprise to too many investors. After all, gold has been proven time and time again to be a “safe haven” investment that rises during uncertain economic times (such as the last two years), and questions about the dollar’s future as the world’s reserve currency (along with other factors placing downward pressure on the greenback) have led many to reconsider their strategic holdings. But the length and degree of the run-up in gold prices certainly caught a number of investors (myself included) off guard. Brett Arends poses a question I would have laughed at two years ago, but now take quite seriously: is it realistic to think gold could really go to $3,000?

Some gold bugs think it’s a distinct possibility.

Gold ETFBud Conrad, the chief economist at Casey Research and a noted gold bug, estimates that gold prices could quadruple from current levels, based on long-term macroeconomic trends. Conrad believes a number of these ratios would support gold prices in the $4,000 to $5,000 range.

Peter Schiff is another gold bug, predicting the fallout from the U.S. government’s massive money-printing will send gold quickly through the $2,000 mark and onwards to $3,000.

Former presidential candidate Ron Paul is also bullish on gold even after its recent rally. Believing that government policies will erode the purchasing power of the dollar, Paul recently indicated he believes gold prices could triple, taking values above the $3,000 mark.

But perhaps the biggest gold bug is located halfway around the globe. China, the world’s largest owner of U.S. government debt, may be fearing that its holdings will become worthless, and has begun shifting its holdings into what Greenspan once dubbed “the ultimate source of payment.” China has repealed its restrictions on precious metals ownership this year, and is reportedly considering a ban on the export of gold and silver. If China continues to move away from the U.S. dollar and towards precious metals, the upward pressure on gold prices could be significant.

As Arends points out, valuing gold on fundamentals is an impossible task. Unlike equities, gold generates no earnings. Unlike bonds, the yellow metal pays no coupons, and has no yield to maturity. It is essentially a “perpetual zero coupon bond,” making determinations of relative value a difficult exercise. ETFdb Pro members can learn more in our Precious Metals ETFdb Category Report (if you’re not a Pro member yet, sign up for a free trial or read more here).

ETF Plays On Gold

As gold prices have skyrocketed, gold ETFs have become increasingly popular, experiencing huge cash inflows in recent months. For investors bullish on gold prices, ETFs are an excellent option for gaining quick, cost-efficient exposure. Here’s a look at three of the more popular gold choices (for a complete rundown of gold ETF options, see our Complete Guide to Gold ETFs)

  • SPDR Gold Trust (GLD): The largest and most heavily traded gold ETF, GLD has a market capitalization of more than $19 billion. GLD invests in gold bars and stores the bullion in secure vaults. GLD has gained more than 30% over the last year.

GLD

  • ETF Securities Physical Swiss Gold Shares (SGOL): SGOL is the latest gold ETF to hit the market, designed for investors who want to invest in physical gold stored outside of the U.S. Because this ETF stores its gold bullion in Swiss vaults, it offers security to those who worry about a repeat of the Gold Confiscation of 1933. SGOL was launched earlier this month, and has already accumulated more than $70 million in assets.

SGOL

  • iShares COMEX Gold Trust (IAU): IAU also seeks to reflect the day-to-day movements of the price of gold bullion. IAU has gained more than 30% in the last year.

IAU

In addition to these ETFs, there are also several products that invest in futures contracts on gold, including DGL and UBG.

For investors who think we’re near the end of a gold bubble, there are also ETFs to bet on falling prices. PowerShares offers a short gold ETN (DGZ) as well as a double short gold ETN (DZZ). ProShares also has an UltraShort Gold product (GLL) that offers leveraged inverse exposure to daily changes in gold prices.

Disclosure: No positions at time of writing.