Detailing Gold’s Wild Q3

By now, most investors are fully educated on gold’s safe haven abilities as well as its jaw-dropping returns. The past few years have seen the precious metal surge while equities have been anything but stable, drawing plenty of attention to the shiny commodity. First, it was the shattering of the $1,000/oz. barrier that put gold on the map. But it didn’t stop there, as the $1,400, $1,500, and even the $1,900/oz. mark was surpassed for a brief period of time. With gold appreciating rapidly, investors have been following its every move over the last few months, creating a headache for many, as the precious metal had a turbulent third quarter [see also 50 Ways To Invest In Gold].

Perhaps the most popular benchmark for gold prices comes from the SPDR Gold Trust (GLD), which represents physical gold bullion. The fund has over $64 billion in assets and an average daily volume of nearly 25 million, making it one of the largest funds in the world. GLD started off the year slow but steady; the fund opened 2011 at $138.72, and was able to post gains of 5.3% through the first half of the year. But as the third quarter rolled around, gold took a roller coaster ride that led to a number of investors turning major profits and losses alike [see also Three Reasons Why Gold Is Overvalued].

The first month of the quarter, July, saw GLD post returns of roughly 8.4%, already dwarfing its performance from H1 and creating reason for a number of investors to hop on board. But gold’s real luster came in August, when a slew of data combined to push the metal to its historic highs. The month started off with a deadlocked congress that nearly failed to agree on a budget bill; the legislation was passed with just hours to spare, narrowly avoiding a federal shutdown. Investors reacted poorly to the seemingly disorganized Washington, leading to a massive outflow from equities and into gold. Next came the first-ever downgrade of U.S. debts by Standard & Poor’s, effectively booting us from the AAA club, and sending gold to its highest prices of all time. In fact, GLD briefly surpassed SPY to become the world’s largest ETF [see also Are Gold Miners A Buy?].

By this time, volatility was surging on a daily basis, and most investors felt safe in their gold holdings, causing GLD to post gains of about 12.3% for the month alone. Through the first two months of Q3, GLD was up nearly 20%, but September had other plans in mind. The month started off with a great gold outlook; the Swiss franc (what many considered to be the last remaining safe haven currency) was pegged to the flailing euro, leaving gold as the stand-alone safe investment. This led to a rapid appreciation in GLD as well as massive inflows [see also Three Ways To Play $2,000 Gold].

However, with the metal being seemingly overbought, the rest of the month was riddled with issues from Greece and the euro-zone debt crisis. While this would normally help propel gold to new highs, the metal dropped, as investors felt they weren’t safe in any asset class. GLD suffered a nasty pullback of 11% in September, leading to a number of analysts “confirming” their suspicions of the metal being overvalued. This was, in fact, the worst month for precious metal since 2008. After all was said and done, GLD still posted a Q3 gain of 8.26%, a return that may shock some after such a down month for gold [see also The Guide To The Biggest Companies In Every Major Commodity Sector].

Now that gold is sitting at its lowest prices in some time, there are a number of conflicting opinions as to whether the metal is fairly valued. One thing is certain, however; gold and GLD alike will be two important assets to watch in the coming months.

After such a turbulent month, we outline three different options for gaining exposure to this popular safe-haven:

• COMEX Gold Trust (IAU): Tracking physical gold, this ETF is an enticing alternative to GLD, as it comes in at 15 basis points cheaper than its competitor. With a lower expense ratio, IAU has been catching up to GLD’s massive assets, making this fund an important one to keep an eye on.
• GC Gold: These futures contracts are offered through the COMEX on the CME Group. The contracts extend from front-month all the way to 2016 and are optionable. The contracts represent 100 troy ounces and are quoted in U.S. dollar and cents.
• Barrick Gold Corp (ABX): One of the largest mining firms in the world, Barrick is perhaps the biggest name when it comes to gold mining. The stock has a market cap of over $47 billion and and average daily volume flirting with 10 million. The stock also pays out a nice dividend yield of 1.1%.

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Disclosure: No positions at time of writing.