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New Gold ETF, Sibling to GLD, Aims To Counter Strong Dollar Headwind

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Like Fred and Ginger or wine and cheese, the oldest gold exchange traded fund and its freshly launched sibling seem to make the perfect pairing.

The new SPDR Long Dollar Gold Trust ( GLDW ), like the $30.43 billion SDPR Gold Shares ( GLD ), gives investors the portfolio diversification benefits of owning gold. Unlike that older ETF, GLDW seeks to mitigate the potential hurt to gold investments from a strong dollar.

That's a pain American investors have grown familiar with over the past three years. Between 2014 and 2016, as the greenback rallied, the price of gold fell 5% in terms of the U.S. dollar but it went up 25% in terms of the euro, according to State Street Global Advisors (SSGA).

Gold and the U.S. dollar tend to move in opposite directions.

GLDW attempts to solve the vexing problem of how to invest in gold when the dollar is strengthening. It tracks an index combining a long position in physical gold with a long position in the greenback, using swap agreements.

So the new ETF offsets the impact of a rallying dollar by, in effect, owning gold with a basket of foreign currencies. This basket includes the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc.

"Together, GLDW and GLD may allow investors to enjoy the diversification benefits of holding gold in either strong or weak dollar environments," said Joseph Cavatoni of World Gold Council, which helped to launch the new gold ETF.

The new gold ETF has a 0.50% expense ratio vs. 0.40% for its older counterpart. That's a fair premium given the additional costs and complexity tied to its investing method, said Nick Good, co-head of the global SDPR business at SSGA.

Unlike rival gold-backed ETFs that also benefit from a strong dollar environment, such as AdvisorShares Gartman Gold/Euro ( GEUR ) or AdvisorShares Gartman Gold/Yen ( GYEN ), GLDW does not use derivatives to obtain its exposure.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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