Amid military conflict in Iran, gold is belying its safe-haven status. The largest ETF backed by physical holdings of the commodity is off more than 14% over the past month. That performance plagues a host of competing funds. If there’s a silver lining — pun intended — it may be that gold’s recent slide is opening the door to opportunities with unique ETFs such as the WisdomTree Efficient Gold Plus Gold Miners Strategy Fund (GDMN). GDMN is comprised of gold futures and shares of bullion miners, indicating it can turbocharge returns when the yellow metal is soaring.
The WisdomTree ETF may also be a beneficiary of easing tensions in Iran, though it’s not immediately clear when that scenario will play out to the satisfaction of market participants. Another factor that could work in favor of GDMN is the gold market working through leveraged trades. Yes, that could create some near-term pain for gold. Indeed, it already is. However, as aggressive positions wane, the commodity’s path to a rebound could be smoother.
“Margin calls are pushing traders to liquidate gold positions to raise cash. Gold had been a standout performer, so it becomes an obvious source of liquidity when markets turn more turbulent,” noted deVere Group CEO Nigel Green.
Ingredients for a GDMN Rebound
Gold’s recent retrenchment is the result of positioning, not negative commentary on gold’s fundamentals. That’s integral to the case for a GDMN resurgence.
“Gold’s rally over the past year has been underpinned by structural forces, including sovereign accumulation, geopolitical risk, and fiscal concerns. Those drivers haven’t disappeared,” added Green.
The deVere CEO also pointed out that global central banks continue accumulating bullion at a rapid pace. Plus, sovereign demand can put a floor under the commodity’s price. Of course, gold, GDMN and other ETFs would benefit if the war in Iran comes to a swift conclusion.
“The pattern is familiar. In the early phase of a crisis, gold attracts inflows. As the situation evolves, investors often pull back to manage liquidity and risk exposure.”
“Any credible signs of de-escalation in Iran would ‘change the dynamic quickly,’ with capital that has been sidelined or redirected would likely return to gold at pace,” concluded Green.
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