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Gold ETFs Rally On Fed Move; New Fund Hedges Currency Risk
FYI: Exchange traded funds holding the beleaguered bullion surged late last week on dovish Fed signals. With an imminent rate hike all but ruled out, the largest ETF tracking the yellow metal, SDPR Gold Shares (ARCA:GLD), popped 2% in Wednesday trade. Regards, Ted http://license.icopyright.net/user/viewFreeUse.act?fuid=MTkxMzU4NDc=
It's an interesting take on what "hedging" currency risk means. Normally we think of hedging currency risk when you invest in something denominated in a foreign currency and then protect yourself against changes in the value of that foreign currency so you're only exposed to the risk of what you invested in. In this case, they're using the term 'hedge' to mean reducing the risk that strength in our own currency reduces the value of what you're investing in- gold.
I might argue that GEUR is not a hedge at all but rather a simple bet that gold does better than the EUR, or even two separate bets (gold vs. USD and EUR vs. USD) packaged together in one etf. In the context of the article the assumption is that the dollar is strong, so gold in USD terms may decline, but if the EUR declines more then you make money. On a purely speculative basis, you'd do even better if you just buy an inverse Euro etf, thereby owning the strongest of the three (USD) and selling the weakest of the three (EUR).
If you need or want to own gold for whatever reason then owning it in terms of something you think will do worse (EUR) is of course better than owning it in terms of something you think will do better (USD).
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I might argue that GEUR is not a hedge at all but rather a simple bet that gold does better than the EUR, or even two separate bets (gold vs. USD and EUR vs. USD) packaged together in one etf. In the context of the article the assumption is that the dollar is strong, so gold in USD terms may decline, but if the EUR declines more then you make money. On a purely speculative basis, you'd do even better if you just buy an inverse Euro etf, thereby owning the strongest of the three (USD) and selling the weakest of the three (EUR).
If you need or want to own gold for whatever reason then owning it in terms of something you think will do worse (EUR) is of course better than owning it in terms of something you think will do better (USD).