Gold ETFs Rebound As Geopolitical Tensions Escalate

It was starting to seem like the only gold anyone would want to hold this August was the kind you win at the Olympics. Ironically, down in Hong Kong, where the Beijing Olympiad’s equestrian events are being run, a new gold ETF got off to the races in July.

In Hong Kong, the World Gold Council is behind July’s launch of the first HK-listed gold ETF, the SPDR Gold Trust. Under the ticker 2840, it’s set up to take advantage of increasing commodity interest on the part of Chinese and regional investors.

According to the Council’s CEO James Burton, local demand for gold at the retail level doubled in 2007.

Then, like a busted leg on a thoroughbred, things took a turn for the worse in the middle of last month. Gold spot prices lost a fifth of their value in just a couple weeks, hurting gold-backed funds too.

But this Thursday, with US-Russia tension sending oil up over five bucks in a day, the New York-traded Gold Miners ETF (GDX) and other gold-related plays got back on track.

International funds that hold physical gold are also set to enjoy a resurgence, confirming Gold World’s standing global recommendation.

The Hong Kong gold ETF’s American counterpart, which shares the SPDR Gold Trust name (GLD), has been listed on the New York Stock Exchange since 2004 and on the NYSE Arca options platform since 2007.

And in July of this year, the SPDR Gold Trust became the most actively traded call option on the Chicago Board Options Exchange, indicating massive interest. Once gold pulled back hard a couple of weeks into July, some started discounting that heavy forward contract volume as mere speculative activity…

Now it’s apparent that a long position in physical gold is justified as a hedge against global instability and currency volatility.

More Gold ETFs on the Upswing

Taking a look at other international gold-backed ETFs, London’s PHAU physical gold fund holds markers for bullion in the vaults of HSBC bank (HSBC). HSBC, the world’s largest bank by assets, is also where you can find the gold behind SPDR Gold Trust’s international listings.

Tokyo, another key international market, also now has a SPDR Gold Shares listing.

Though we’re long gold, we recognize that monitoring volatility is important for investors.

So we’re happy that the CBOE now has a gold price volatility index, much like the famous VIX that investors worldwide refer to as the market’s “fear gauge.”

We’re seeing more dramatic swings in daily gold prices these days, like Thursday’s $20 jump. A couple of years ago, single-digit changes were much more common.

The launch of the Gold VIX (^GVZ) confirms the rise in volatility, and we’ll be keeping a close eye on it. For long-term investors, we say buying on weakness is a winning strategy.

You can learn more about the Gold VIX on the CBOE site, here: http://www.cboe.com/micro/gvz/introduction.aspx

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