GLTR’s Slide May Be Golden Buying Opportunity

Some things that don’t glitter may still be gold. 

That may be the case with the abrdn Physical Precious Metals Basket Shares ETF (GLTR) , a fund that has been dented by high interest rates and a strong dollar but that has performed well historically when it is beaten down.  

The fund owns a portfolio of physical precious metals trading on the Chicago Mercantile Exchange’s COMEX and NYMEX divisions, including gold, silver, palladium and platinum. GLTR owns the physical metals, and the management fee covers storage and insurance, allowing investors exposure to the metals without the hassle of physical ownership. 

As of Sept. 8, GLTR’s holdings included the following: 

Source: Abrdn.com 

At $86.51 per share on Sept. 8, GLTR had over $959 million in assets under management. Based on the metal’s value, GLTR held over 60% of its assets in gold, with more than 27% in silver. Palladium exposure was under 8%, while the platinum investment was just below 4%. GLTR charges a 0.60% management fee.  

As of Sept. 8, GLTR was lower than the closing level on Dec 30, 2020.  

Precious Metals Fall as Bonds Decline and U.S. Dollar Rises 

Precious metals are industrial and financial assets. The International Monetary Fund classifies gold as a foreign currency reserve, validating its role in the global financial system.  

As financial assets, precious metals compete with stocks, bonds and other kinds of assets for investment capital. Rising interest rates cause capital to flow to fixed-income assets, which is bearish for the metals. Rising rates also increase the cost of carrying inventories, another bearish factor.  

The U.S. dollar is the world’s reserve currency and the pricing benchmark for most commodities. Precious metals are no exception. London is the hub of physical precious metals trading, but the U.K. markets trade gold, silver, platinum and palladium in U.S. dollars. A rising dollar tends to weigh on prices as higher values in other currency terms decrease the demand.  

Over the past months, the dollar index has rallied, and bonds have declined, creating a bearish cocktail for the precious metals. 

Trading Tied to Gold 

With over 60% of its assets invested in gold, GLTR tends to move higher or lower with the precious yellow metal, the leading financial metal. In 1999, gold prices found a bottom at $252.50 per ounce when the U.K. auctioned half its national reserves. Since then, gold has made higher lows and higher highs, reaching record peaks at $2,072 in 2022 and 2023. 

Every downside correction in gold has been a buying opportunity in the past 25 years. While rising interest rates and a stronger dollar have weighed on the price of gold this year, the metal was trading above $1,940 per ounce on Sept. 8, up from $1,824.16 at the beginning of the year.  

Dollar and Euro May Face Challenge 

The dollar and euro, the world’s top reserve currencies, could face a challenge over the coming months and years. The war in Ukraine, the Chinese-Russian alliance and the bifurcation of the world’s nuclear powers have led the BRICS countries (Brazil, Russia, India, China and South Africa) to move toward a currency to challenge the U.S. and European currencies to avoid potential sanctions. 

Gold could back a new BRICS currency, making it a non-fiat currency. The significant change in the world financial system would only enhance gold’s role as the U.S. dollar and euro derive value from the full faith and credit in the countries issuing the legal tender. Moreover, a decline in the dollar and euro values could support gains in gold.  

GLTR Outflows in 2023 

GLTR has lost its luster in 2023 as it has declined, falling 3% year to date through Sept. 8. 

Source: etf.com 

The etf.com Fund Flows Tool shows GLTR’s $32.87 negative flow in 2023. Meanwhile, precious metals tend to attract a herd of buyers when prices rise, and more than a few issues can turn the prices higher over the coming months.  

Four Reasons GLTR May Shine

Four possibilities that support a rally in GLTR are: 

• While the dollar index rallied over the past weeks, a correction that takes the index back to the mid-July lows could increase precious metals demand and prices.  
• The Federal Reserve’s hawkish path is likely to slow over the coming months. As the market digests the high interest rate levels and the odds of rate cuts increase, precious metals will likely attract buying.  
• The geopolitical landscape remains turbulent. Precious metals tend to be safe harbors during volatile times. 
• The U.S. debt has climbed to a level that could cause further credit downgrades. A decline in creditworthiness leads to a weaker currency, which is bullish for precious metals.  

GLTR may be tarnished at the present time, but its luster could return in the blink of an eye. Buying precious metals on weakness has been the optimal approach for decades. That will likely continue.