Now may be an opportune time to buy ahead of the next move higher for gold and a great way to do it is with one of the best gold funds available on the market today.
The spot price of gold jumped 10% in January but has pulled back to around 2% higher than where it started the year. Recent price volatility has been primarily due to the back-and-forth of Greek debt negotiations and secondarily to expectations over the relative strength of the U.S. dollar against other currencies.
Also keeping a lid on moves higher for gold in the short term is the market’s anticipation of rising interest rates. Often seen as a hedge against inflation, gold traditionally has had an inverse relationship to interest rates with demand for the precious metal increasing when rates are low.
What Might Move Gold Prices Higher?
In the near term, a retracement to a spot price of gold around $1200 has been expected and the precious metal is sitting at that price level now.
It’s also likely that expectations over interest rates are already priced into gold. Also, once the Fed starts the cycle of interest rate increases, the market will focus on how high rates may rise, which is not likely to be very much. Therefore part of the support for higher prices for gold is the lack of downside pressure.
With higher interest rates coming later in 2015 already priced in, the next move higher for gold might come from increases in uncertainty over global economic conditions and a U.S. economy that continues to show signs of late-phase business cycle conditions, alongside an aging bull market with questionable forward strength.
The Two Best Gold Funds You Can Buy
- SPDR Gold Shares (GLD) is an accessible, cost-efficient, transparent, and liquid means of investing in gold, which is also why it is the heaviest-traded gold ETF. Although shareholders do not hold physical gold, GLD shares are backed by physical gold bullion, which enables the fund to effectively track the spot price of gold. The objective of the SPDR Gold Trust is for the shares to reflect the performance of the price of gold bullion, less the Trust’s expenses. A low expense ratio of 0.40% makes GLD an outstanding choice for adding exposure to gold in a diversified portfolio.
- Tocqueville Gold (TGLDX) is an actively-managed mutual fund that offers broader exposure to gold by owning shares of gold-mining stocks and other companies related to the processing of gold. The fund’s flexibility may also be more alluring to investors looking for a long-term holding with low correlation to U.S. equities. For example, the 15-year annualized return for TGLDX is an impressive 10.3%, whereas the S&P 500 Index averages less than half of that at 5% during that 15-year period, which includes a massive selloff for gold in 2013 and two bear markets for stocks. The expense ratio is above-average at 1.36% but not excessive for a well-managed fund. The minimum initial investment for TGLDX is $1,000.
In summary, right now gold is sitting at an important support level with arguably more upside potential than down. With that said, while short-term volatility is almost certain, a long-term investor can add diversity to a portfolio with an outstanding gold fund now. A suggested allocation is somewhere around 5% of your portfolio.
As of this writing, Kent Thune did not hold a position in any of the aforementioned securities. Under no circumstances does this information represent a recommendation to buy or sell securities.
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