Aberdeen Standard Physical Gold Shares ETF: A Solid Choice

By Rob Isbitts

Strategy

Aberdeen Standard Physical Gold Shares ETF (NYSEARCA:SGOL) is a more direct way to participate in the growth potential of gold than some other ETFs on the market. It owns gold bullion directly, and wraps that gold position in an ETF package.

Proprietary ETF Grades

• Offense/Defense: Offense

• Segment: Commodities

• Sub-Segment: Gold

• Risk (vs. S&P 500): Low

Proprietary Technical Ratings

• Short-Term (next 3 months): Buy

• Long-Term (next 12 months): Buy

Holding Analysis

SGOL has one holding, period. It is 100% invested in gold bullion. That gold is held in two separate JPMorgan (JPM) vaults, one in London and one in Zurich. That’s it.

Strengths

As ETFs go, this one scores very high on the scale of “knowing what you own.” As opposed to some of the earlier ETFs issued many years ago, this one holds gold bullion directly. There are no options, futures, forward contracts, or other derivatives involved. SGOL has also reach a size (nearly $2.5 Billion in assets) that it can be considered by a wide range of investors. It also trades over $35 Million in volume in a typical day, so liquidity is strong at the ETF level as well.

Weaknesses

Given that SGOL is as much a pure-play ETF on one asset type (gold) as any other we follow. That means that SGOL is only as good as the price movement in gold itself. Gold has been around for a very long time, and was a very important unit of exchange/currency in the past. However, SGOL is one of many ETFs that track gold. This has created a concern among some investors that gold may have been made too much of a speculative, commercialized investment tool. As such, pardon the pun, but it may have lost its luster as a market indicator, versus the more critical role it played in the past.

One long-standing criticism of gold is that it is simply a commodity that has little use in the business world. Thus, other than in areas such as jewelry, it is only worth what someone will pay for it. It has no “intrinsic” value.

Opportunities

Gold has been in a slumber for quite a while. Just look at the chart above. Despite a recent rally, SGOL’s price is just recovering to near its all-time high from back in 2011. This seems to me to be a good, graphic reflection of gold’s evolution from important alternate currency to the US Dollar to something that market participants may be looking at differently.

Threats

Gold may be as much of a sentiment/emotion-driven asset class as any. As such, its price can be flipped around for reasons having nothing to do with the underlying supply-demand of gold. Technicians (like me) see gold and ETFs like SGOL as trading tools, more than investments. That said, it is possible based on my technical view that SGOL and its gold ETF peers are as close to a long-term breakout as we’ve seen in a while.

Conclusions

ETF Quality Opinion

SGOL is a solid ETF in terms of structure. The fund’s website even has a letter attesting to the location and amount of gold in those two vaults. There has been some concern in investor circles that there might actually be more gold accounting in ETFs than actual physical gold in the world. SGOL going that extent through both the letter and a separate JP Morgan statement of holdings provides helpful information to potential investors.

ETF Investment Opinion

I assign a Buy rating to SGOL, since I think it is one of the better ETFs in this asset class, and since gold’s technical picture is improving. In times of high inflation, gold has traditionally been an excellent hedge on other assets. And this time around, stocks and bonds (not only stocks) have been facing downward price pressure. That type of tailwind could occur again during this economic cycle. If it does, a modest position to SGOL is something I favor.