Gold ETFs are leading in flows across commodity funds as investors prepare for the shifting economic regime.
The precious metal’s prices reached an all-time high on Thursday following the Federal Reserve having cut interest rates by a half percentage point. It is projected that rates will fall by another half percentage point by the end of 2024, offering more support for gold, which tends to do well in a low-rate environment.
See more: Fed Takes Aggressive Rate Cut Approach: Now What?
Investors have been snapping up gold ETFs in anticipation of the initial interest rate cut. The top commodity ETFs by one-month net flows all provide exposure to gold.
The SPDR Gold Shares (GLD ) has accreted a staggering $1.4 billion in the past month, while chief competitor iShares Gold Trust (IAU ) took in $463 million.
Some of the most popular ETFs in the category include the $72 billion GLD, the $31 billion iShares Gold Trust (IAU ), the $3.6 billion abrdn Physical Gold Shares ETF { % etf SGOL %}, the $1.1 billion VanEck Merk Gold ETF (OUNZ ), and the $859 million GraniteShares Gold Trust (BAR ).
Gold ETFs: Strong Past Performance But Room to Run
Gold ETFs, measured by fund giants GLD and IAU, have outpaced the broader U.S. equity market, as measured by the S&P 500, handily year to date. GLD and IAU have offered attractive returns, climbing over 25% between Jan. 1 and Sept. 19.
Over a three-year period, GLD and IAU returned over 46%, while the S&P 500 climbed 35%, each nonannualized.
Gold ETFs continue to see healthy flows despite the strong past performance, and analysts predict there is still room for growth.
Goldman Sachs Research forecasts the price of gold will reach $2,700 by early 2025, supported by the Fed’s rate cutting cycle and gold purchases by emerging market central banks.
What About Gold Miners?
There are several ETFs available that offer exposure to gold through the equities of gold miners. These include the VanEck Gold Miners ETF (GDX ), the Sprott Gold Miners ETF (SGDM ), and the Themes Gold Miners ETF (AUMI ).
These funds have offered compelling recent returns; however, it’s important that investors understand the differences between the two types of gold funds.
Gold miners are likely to benefit from an earnings standpoint from higher gold prices. However, miners also face additional pressures and variables that physical gold does not, such as input and labor costs as well as market beta/valuation risk given that miners are owned as equities.
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