A new ETF which has been making headlines this week is the SPDR Long Dollar Gold Trust (GLDW) which invests in a basket of gold companies in addition to going long the U.S. dollar, a strategy which aims to limit the potential risks associated with the U.S. dollar with respect to gold companies.
Gold and the U.S. dollar are inversely related, meaning that as the value of the U.S. dollar increases relative to other currencies, gold prices are negatively affected. Betting on the strength of gold companies by buying equity positions in such securities can thus be thwarted by a rising U.S. dollar, and this ETF aims to hedge out much of the currency risk investors are exposed to by simply reducing the currency exposure to gold companies while retaining the potential upside of gold equity issues.
Gold is an asset class that many investors use to hedge the downside risk associated with financial markets, however most investors who use this hedge do not attempt to reduce the currency risk associated with such a strategy.
This ETF has not “created the wheel” by discovering something now; it does, however, provide investors with a new tool to be able to effectively hedge financial markets with reduced currency risk, something which many investors have been looking to do for some time. In a current market environment where valuation multiples are approaching all-time highs, it may be a prudent move to hedge a portion of a given portfolio with gold – this ETF provides yet another option to investors to do so.
