Expansionary Monetary Policy To Support Gold ETFs

Gold recently surged to a record high, driven primarily by strong fundamentals and is likely to continue to witness positive price support due to global expansionary monetary policy enabling the SPDR Gold Shares ETF (GLD), the PowerShares DB Gold Fund (DGL) and the Market Vectors Gold Miners ETF (GDX) to reap the benefits. 

Randall Forsyth for Barrons states that nearly every central bank around the world is aimed at avoiding a too-strong currency and is opting at incorporating an expansionary monetary policy, printing more currency, to shore up their slumping economies and starve off deflation.  As a result, the value of respective currencies will decline and push the price of gold up.

In fact, on Wednesday, Japan reported to intervene in the currency markets to curb the recent surge in the yen’s value by dumping a trillion-yen into the market.  Additionally, Chinese authorities continue resist a full appreciation of their undervalued currency and many believe that the US Fed will further expand its balance sheet for its second round of quantitative easing.  Lastly, in Europe, the European Central Bank is still dealing with the effects of the sovereign debt crisis and is trying to curb any threats of a relapse of the crisis. 

In addition to this global expansionary policy, gold is likely to witness positive price support due to the US monetizing of debt, which is expected to result in inflation and a reduction in the purchasing power of the Dollar. 

As previously noted, some easy ways to gain exposure to gold include:

  • SPDR Gold Shares (GLD), which is the most actively traded gold ETF.
  • PowerShares DB Gold Fund (DGL), which utilizes futures contracts to gain exposure to the precious metal
  • Market Vectors Gold Miners ETF (GDX), which holds companies that are involved in mining of gold such as Barrick Gold (ABX) and  AngloGold Ashanti (AU)

Although fundamentals remain positive for gold, it is important to implement an exit strategy which protects from the inherent risks that are involved with investing in commodity driven ETFs.  Such a strategy can be found at www.SmartStops.net.

Disclosure: Long GDX

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About etftutor
Kevin Grewal is the founder, editor and publisher of ETF Tutor and serves as the editor at www.SmartStops.net, where he focuses on mitigating risk and implementing exit strategies to preserve equity. Additionally, he is the editor at The ETF Institute, which is the only independent organization providing financial professionals with certification, education, and training pertaining to exchange-traded funds (ETFs). Prior to this, Grewal was a quantitative analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds a bachelor's degree from the University of California along with a MBA from the California State University, Fullerton. He is contributing author on The Street - his articles can also be found published on various sites including Yahoo! Finance, The Globe and Mail , Daily Markets, MSN Money, Seeking Alpha, Fidelity Investments, Traders Library, and Minyanville. Prior to this, Mr. Grewal was an analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds

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