How to Play the Gold Rush With ETFs

After peaking at $3500 per ounce last month, the gold price has been on a roller-coaster ride lately. While ongoing trade uncertainty has boosted gold's safe haven appeal, the return of risk appetite and signs of easing trade tensions are weighing on the yellow metal.

Factors Driving Up Gold Price

Gold has become extremely popular this year as investors seek to shield their portfolios from Trump tariffs disrupting trade relations and slowdown concerns. In the latest tariff escalation, Trump announced a 100% tariff on movies produced outside the United States. He further signaled that he might announce tariffs on pharmaceuticals over the next two weeks, aimed at reducing regulatory hurdles for pharmaceutical manufacturing in the United States.

Gold is used to preserve wealth during financial and political uncertainty and usually does well when other asset classes struggle. Renewed conflict between India and Pakistan also provided a boost to haven flows into gold (read: Gold ETFs Surge on Safe-Haven Demand: Is a Pullback Coming?). 

A weaker dollar and sustained central bank buying also buoyed gold’s rally this year. Though the Fed is expected to keep interest rates steady at this month’s meeting, an imminent rate cut could be in the cards in the next couple of months. Lower interest rates reduce the opportunity cost of holding non-yielding assets like gold, increasing its attractiveness over fixed-income investments such as bonds.

Risks

Trump has announced potential trade deals with India, South Korea and Japan, aiming to convert his tariff policy into trade agreements. He also announced that the top U.S. officials would meet with their Chinese counterparts this weekend to discuss trade. The meeting would be the first major talks between the countries since Trump raised tariffs on imports from China to 145% last month.

Meanwhile, April jobs data show that the U.S. labor market remained resilient amid the tariff chaos. The economy added better-than-expected 177,000 jobs while the unemployment rate held steady at 4.2%, providing further assurance about the economy's health. This has injected strong optimism into the stock market, leading to a decline in gold prices. 

While tariff-driven uncertainty and potential Fed dovishness support gold’s rally, the near-term volatility is likely to persist given the ongoing trade talks. Given the abrupt changes in gold price and an uncertain outlook, investors should place their bets on gold ETFs cautiously or take advantage of the quick turn in sentiment with the help of leveraged or inverse ETFs.

Physical Gold ETFs

These ETFs track the price of gold by holding physical bullion. Some of the most popular funds in this category are SPDR Gold Trust ETF (GLD), iShares Gold Trust IAU, SPDR Gold MiniShares Trust GLDM, abrdn Physical Gold Shares ETF SGOL and iShares Gold Trust Micro IAUM.

Gold Mining ETFs

These ETFs hold stocks of companies that mine gold. They tend to experience more gains or losses than gold in a rising or falling metal market. Market Vectors Gold Mining ETF GDX, VanEck Vectors Junior Gold Miners ETF GDXJ and iShares MSCI Global Gold Miners ETF RING are the most popular with AUMs of $14.4 billion, $5.1 billion and $1.4 billion, respectively (read: Should You Buy Gold or Gold Miners Now?).

Leveraged Gold ETFs

Investors who are bullish on gold may consider these ETFs. These funds aim to return two times (2x) or three times (3x) the daily performance of gold or gold miners. ProShares Ultra Gold ETF UGL and DB Gold Double Long ETN DGP offer 2x the return of the daily performance of the Bloomberg Gold Subindex and the Deutsche Bank Liquid Commodity Index Optimum Yield Gold, respectively.

Direxion Daily Gold Miners Index Bull 2X Shares NUGT provides two times exposure to the daily performance of the NYSE Arca Gold Miners Index. Direxion Daily Junior Gold Miners Index Bull 2x Shares JNUG provides 2x exposure to the daily performance of the MVIS Global Junior Gold Miners Index. MicroSectors Gold Miners 3X Leveraged ETN GDXU seeks to deliver three times the performance of the S-Network MicroSectors Gold Miners Index.

Inverse Gold ETFs

Investors who are bearish on gold may want to consider a near-term short with these ETFs. These funds aim to return two to three times the inverse daily performance of gold or gold miners. ProShares UltraShort Gold ETF GLL offers two times the inverse of the daily performance of the Bloomberg Gold Subindex. DB Gold Short ETN DGZ creates a short position in the Deutsche Bank Liquid Commodity Index Optimum Yield Gold while DB Gold Double Short ETN DZZ offers a two times leveraged factor on the inverse performance in the same index (see: all the Inverse Commodity ETFs here).

Direxion Daily Gold Miners Index Bear 2x Shares DUST provides two times inverse exposure to the daily performance of the NYSE Arca Gold Miners Index. Direxion Daily Junior Gold Miners Index Bearl 2x Shares JDST provides 2x inverse exposure to the daily performance of the MVIS Global Junior Gold Miners Index. MicroSectors Gold Miners 3X Inverse ETN GDXD seeks to deliver three times inverse performance of the S-Network MicroSectors Gold Miners Index.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research