Futu Research | ETF Investment Research
Hedge Asset Recommendations via ETF Gold Opportunities
“Gold and silver is not currency, natural currency is gold silver”. Economic common sense tells us that gold and other precious metals have one very important attribute — the value of conservation. From ancient times, gold and other precious metals have been safe havens in times of turmoil.
What are Avoidance Assets
Assets AvoidedThis means that when the market risk assets are adjusted, the price does not fluctuate, but one type of asset with a valuation function is considered to be a stable asset. Common hedged Assets include Gold and Other Precious Metals, USD's Hedge Currency, Hedge Stocks, and Treasury Bonds.
Valuation Changes in Hedging Assets
When looking for investment opportunities associated with the precious metals market, we first need to analyze how the price of the precious metal is valued and what factors can reflect the price of the precious metal, in order to further analyze the price of the depreciable gold in various ways. In the case of Gold, there are two points to reflect other pricing factors: the real value of gold and the opportunity cost.
True Value
True real value, which is the added value of owning Gold, is reflected in three dimensions: value scale, supply and concession risk.
Value scale: Gold is generally opposed to the value of a major currency, such as the US dollar. When the value of a currency falls, gold's function as a store of value is enhanced, and the price rises accordingly.
Demand relationship: Gold as a commodity, its value is fundamentally affected by supply: supply and demand rises in value, and vice versa.
Public safe haven: “Buy gold in the world's most precious antiques.” When events such as falling interest rates cause the roots of the modern monetary system to shake, gold's hedging attributes appear, driving its price up.
Opportunity Cost
The opportunity cost is the loss of holding Gold. The main body is in two ways: the natural volatility of retail Assets and the volatility of commodities.
Interest-bearing Assets: Gold cannot be viable after holding gold, so the opportunity cost of having gold is easy to invest in interest-earning assets (Stocks, Bonds, etc.). In some cases, the price of gold is a reflection of the real interest rate, and the medium-term volatility of gold prices is more likely to depend on the market's earnings forecast for bonds.
Trading Conventionality: Gold has typical MMF characteristics, the terminal is not a time dominant, the volatility factor arises every day, various trade and investment movements will lead to an increase in the demand for real money, the gold price will fall on the floating counterpart, and the gold price will be under pressure.
Impact of falling interest rates on hedged assets such as gold
As mentioned above, “the gold price is a shadow of the actual interest rate”. Once the Fed cuts interest rates, the Italian interest rate will fall for the first time, accompanied by the high level of inflation in the United States, a drop in real interest rates will be decisive.
Therefore, in this case, the attractiveness of life assets such as bonds stocks compared to gold will drop significantly, and investors will be more inclined to hold various types of hedged assets — the price of precious metals such as gold will go higher along the way; meanwhile, various assets in the market and banks in the country will be more likely to buy precious gold, etc. The metal stabilized, and the market experienced a shortage of demand, which further pushed its price higher.
After clarifying the speculative opportunities for precious metals such as gold, below we present investment products related to precious metals in the US equity market, where investors can choose as needed.
Hedge Assets (Gold Related)
In the previous article we have talked about that for a broad investor, compared to investing directly in stocks and futures,ETFIt is a safe product that can diversify investments. Below, we will introduce you to the top five Efund Gold ETF Assets in the US Stock Market Cap for reference.
GLD SPDR Gold ETF
$SPDR Gold ETF(GLD.US)$: It is the world's largest physical gold ETF, tracking the gold price of the London Gold and Silver Market Association (LBMA). Buying this ETF is equivalent to holding gold indirectly and directly enjoying the benefits of rising gold prices, giving investors the opportunity to track the spot price of gold.
As of May 27, GLD's assets have reached $65.238 billion, a year-to-date increase of nearly 13% and its trading rate is 0.4%.
Advantages: Direct Hooked Gold Price, Large Assets Model, Extremely Strong Mobility, Suitable for High-Frequency Large Hand Trading.
Disadvantages: Higher transaction fees (0.4%) and medium-term investment returns may be affected.
IAU Gold CreditETF
$Gold Trust Ishares(IAU.US)$: This is a large Gold ETF in the US equity market, which tracks LBMA's gold price and offers investors the opportunity to directly Trade Goldgold. The current Assets model stood at USD 29.721 billion, below GLD. Year-to-date, the IAU has risen by more than 13%.
Advantage: IAU costs are lower than GLD (trading rate of only 0.25%), suitable for investors with medium-term asset allocations.
Disadvantages: Although the visibility is high, it is still not like GLD, and the circulation is relatively weak.
GLDM SPDR Gold MiniShares Trust
$Spdr Gold Minishares Trust(GLDM.US)$ : It is a US-based ETF that invests in Real Gold. Unlike the two real Efund Gold ETFs above, GLDM's Assets model is only $7.584 billion, which is better suited to a small number of investors. At the same time, the Trade Fee rate is lower than 0.18%, down 12.9% year-on-year.
Pros: Trade rate is lower than 0.18%, suitable for long-term investors.
Risks: Funds are not rated 1/3 of the IAU and 1/3 of the GLD, and the flow rate is not far from the previous two ETFs.
GDX Golden Minerals ETF
$VanEck Gold Miners Equity ETF(GDX.US)$: This ETF invests in a range of global Golden Minerals companies and does not directly invest in gold. Buying this type of ETF is likely to benefit from earnings growth in gold industry companies while enjoying the gains from rising gold prices.
Advantage: Benefit from two ways to increase gold prices and improve the performance of gold industry chain companies
Problem: Trade rates are higher (0.51%), not due to medium-term investment income.
As of May 27, the Assets totaled US$14.518 billion, with a Trade Fee of 0.51%. The year-to-date increase is 13.71%. Product Hold Positions include Newmont Mining and AEM Mining Companies.
GDXJ Small Gold Mining ETF
$VanEck Junior Gold Miners ETF(GDXJ.US)$GDX is also a global gold mining company, but GDXJ focuses more on small to medium-sized gold mining companies.
Advantages: Similar to GDX, there are two ways to benefit from gold price gains and corporate performance.
Forecast: Assets are small and medium-sized mining companies. Assets are less than half the GDX, and the cost ratio is not lower (0.5%).
As of May 27, it had assets of $5.462 billion and a trading rate of 0.5%. The year-to-date increase is 17.65%. The product's holdings include small and medium-sized mining companies such as AGI, Harmonie Gold.
Avoidance Assets (Silver-Related)
Since there are relatively few silver ETF products on the U.S. stock market, we have selected the top three silver ETF products by market capitalization for your reference.
SLV Silver ETF
$iShares Silver Trust(SLV.US)$SLV is the world's largest silver physical ETF that directly holds silver and tracks spot silver price movements. As of May 29, SLV's assets were approximately US$13.42 billion at a trading rate of 0.50%, and an increase of 35.25% year-to-date.
Advantage: Silver ETF with the largest portfolio of Assets available, offering investors good liquidity.
Disadvantages: The management fee is higher (0.50%), and there may be some cost accumulation over the long term.
SIL Global X Silver Mining ETF
$Global X Funds Global X Silver Miners Etf (Post Rev Spl(SIL.US)$ SIL does not track silver prices directly, but tracks the Solactive Global Silver Miners Total Return Index, which includes listed companies involved in silver exploration, mining and refining. As of May 29, SIL's assets were approximately $1.214 billion at a trading rate of 0.65%, an increase of 28.2% year-to-date.
Advantages: Components cover well-known silver mining companies in several countries such as Canada, Russia, the United States, including Whitton Precious Metals (WPM), Standard American Silver Corporation (PAAS), etc.
Downside: The trading rate is 0.65%, the highest of the three ETFs, and the performance of the shares is affected by the performance of silver mining companies.
SIVR Abrdn Silver ETF Trust
$Abrdn Silver ETF Trust(SIVR.US)$: SIVR tracks the price of physical Silver directly, and ETFs are held in Treasuries and subject to periodic inspection, and do not participate in Futures contracts. As of May 29, SIVR's Assets were valued at US$1.429 billion, with a Trade Fee of 0.30%, compared to 35.16% year-on-year.
Advantage: Lower fee rate (0.30%) compared to SLV, which saves transaction costs.
Problem:Assets are small in scale and mobility is low.
Disturbed Assets (Copper Market Related)
Similar to the silver market, here are the top three copper ETFs on the U.S. stock market by market capitalization that everyone can use as an investment reference.
CPER USA Copper Index
$United Sts Commodity Index Fd Com Unit Repstg U S Copper Index Fd(CPER.US)$: Track SummerHaven Copper Index Total Return Index, which tracks the performance of Copper Futures contracts, provides direct vs contract performance, and offers investments related directly to Copper Copper prices. As of May 29, CPER's Assets totaled US$0.232 billion, with a Trade Fee of 0.65%, up 23.86% year-on-year.
Advantage: Direct tracking of copper prices is ideal for investors with a clear view of the copper market.
Trend: The Market Cap is small, the volatility may be limited, and the cost ratio is higher (0.65%).
CPOX Copper Mining ETF
$Global X Copper Miners ETF(COPX.US)$: Track the Solactive Global Copper Miners Index. The index covers copper exploration companies, developers and producers, providing a comprehensive exposure to the copper mining industry. As of May 29, COPX has an asset size of approximately $2.7 billion at a trading rate of 0.65%, an increase of 34.56% year-to-date.
Advantage: Provides a broad portfolio of global copper mining companies, whose constituent stocks include Polish Mining Group (KGHM), First Quantum Mining (FM), etc.
Disadvantages: relatively high cost rate (0.65%) and product performance is affected by the operating condition of copper mining companies.
ICOP ISHARES COPPER AND METALS MINING ETF
$ISHARES COPPER AND METALS MINING ETF(ICOP.US)$: Copper ETF, newly listed in June 2023, tracks the STOXX Global Copper and Metals Mining Index. The index focuses on global copper mining companies, providing investment opportunities in this particular industry.
As of May 29, CPER's Assets were valued at US$22.5 million, with a Trade Fee of only 0.47%, and a year-on-year increase of 30.67%.
Advantages: Hold Positions Covered by Southern Copper, Freeport-McMoRan Gold Co., have a low cost ratio (0.47%), suitable for the long term.
Trend: Less than a year after the listing period, the market cap of the COPX peer ETF decreased in volatility.
