Last week the World Gold Council reported that central banks continued to add to their global gold reserves during the month of July. The World Gold Council also highlighted that China, Poland and Turkey were among the countries that were the largest buyers of gold during the month.
Why Are Central Banks Interested in Gold?
Central banks often turn to gold because it generally maintains its value regardless of currency or geopolitical developments. This could be a contributing factor as to why data continues to show that many of the central banks are keen on upping their global gold reserves.
Investors also have taken an interest in gold this year. Using data obtained from the Explorer platform we are able to see how much investors are engaging with gold ETFs on VettaFi’s digital properties. The data shows that investors have shown the most interest in gold relative to other precious metals in the past six months. Gold ETFs account for more than 60% of all interactions on VettaFi digital properties when it comes to precious metals.
Diving even deeper into the data, investors are specifically interested in physical gold ETFs rather than other types of gold exposures. This could be because physical gold ETFs lack the equity risk that gold mining ETFs on the market can face. Indeed, market volatility is elevated this year, which could account for the uptick in interest. Physical gold ETFs also provide more direct exposure to the underlying asset than futures-based products.
See More: Gold Exposure a Common Choice in Uncertain Times
A Unique Physical Gold ETF
Investors looking for a physical gold ETF can look to the VanEck Merk Gold Trust (OUNZ). Data from LOGICLY provides a look at the fund’s key features.
Since its inception in 2014, OUNZ has accumulated just under $720 million dollars in AUM. In the past six months, the fund saw a net inflow of nearly $55 million. During the same time period, the largest physical gold ETFs saw hundreds of millions of dollars in outflows.
OUNZ posted a 5.26% YTD return, slightly outperforming some of its competitors. The SPDR Gold Shares (GLD), the largest physical gold ETF with $55 billion in assets under management, for example, posted a 5.17% return during the same time period. It also has a slight performance advantage during the past 12 months, with an 11.3% return versus 11.07% for GLD. With an expense ratio of 0.25%, OUNZ is also 15 basis points cheaper than GLD.
The VanEck fund is also unique because it allows investors to redeem shares for physical gold.
OUNZ and SPY 5-Year Performance
5-year performance between OUNZ and SPY per LOGICLY.
Using LOGICLY we are also able to look at the performance between OUNZ, and the SPDR S&P 500 ETF Trust (SPY) in the last five years. Gold is not necessarily less volatile than equity funds like SPY. However, gold’s performance is affected differently than equities. This can be seen when looking at SPY’s significant dip in performance during the COVID-19 pandemic. When looking at OUNZ’s performance during that time frame the fund did not show the same as SPY. Having two funds that perform differently from one another like OUNZ and SPY in a portfolio can help investors reduce the overall volatility of their portfolio.
Ultimately as many of the world’s economies continue to face a significant amount of uncertainty central banks, and investors alike may continue to look to gold. They will use gold as a way to protect and diversify against unpredictability.
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Visualizations and data provided by LOGICLY, which is a wholly owned subsidiary of VettaFi.
Originally published on ETFTrends.com on September 13, 2023.
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