It may be a decrepit relic from a bygone era but gold has witnessed something of a renaissance recently. In the past 52 weeks, the gold price — as defined by the contract price at the COMEX — has gained over 43% of market value. And just on a year-to-date basis, the yellow metal has moved up more than 10%. If the prior ebb and flow is any indication, there could be more gains to come.
Investors interested in gold — especially for the reason of wealth protection in the face of incoming inflation — could choose to buy physical bullion. As gold bugs love to say, you don’t own it unless you hold it (or something to that effect). However, physical ownership of the asset carries its own unique disadvantages, including storage and various custodial protection concerns.
For those who are seeking a convenient exposure to the gold market, the exchange-traded fund SPDR Gold Trust (NYSEARCA:GLD) could be an effective solution. Ranked as the largest and most liquid gold-backed ETF, the GLD is designed to track the price of gold by holding the metal in trust. Essentially, the fund provides an easy way for investors to benefit from the asset’s returns without needing to store or manage the metal themselves.
Even better, the backdrop appears incredibly lucrative for the GLD ETF. For one thing, there have been strong inflows into gold ETFs over the past several months, according to a Reuters report. Previously, interest-rate cutting cycles helped fuel the yellow metal’s stratospheric rise. At the present juncture, inflationary tailwinds such as a generally robust U.S. labor market and wage growth are contributing to the northward trajectory.
Moreover, there’s not a clear indication that any of these upside catalysts are easing. If anything, inflationary pressures may exacerbate, cynically favoring the GLD ETF.
Now, when it comes to gold investing, the GLD ETF is rather boring. It’s nowhere near as exciting (or as dangerous) as betting on a junior exploration firm. Those can be hit or miss — usually the latter. Further, the GLD is far less aggressive than 2X or 3X-leveraged gold funds. Instead, this benchmark ETF is a slow-roasted meal for your portfolio.
What it lacks in outright excitement it makes up for with an upward bias. Using data from the prior five years, a stochastic or temporal view of the GLD ETF reveals an investment that’s friendly to the bullish investor. Specifically, a position entered at the beginning of the week has a 55.38% chance of rising by the end of it. Over a four-week period, this statistic rises to just under 58%.
Under dynamic conditions (or under defined parameters), the long odds are similar to the stochastic calculation. For instance, the GLD ETF gained 1.6% last week. For weekly returns up to 5%, the subsequent one-week long odds stand at 55.86%. Over a four-week period, the metric inches higher at 56.34%.
Bottom line? The SPDR Gold Trust presently offers a compelling avenue to grow the risk-on portion of your portfolio. Combined with options flow data showing strong bullish sentiment among institutional investors on Tuesday, the GLD ETF has become an unignorable idea.
