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Gold Gets Lift From Possible Expansionary Monetary Policies

Stocks in this article: GLDDGLGDX

NEW YORK ( TheStreet)-- Gold recently surged to a record high, driven primarily by strong fundamentals and the likelihood of price support from global expansionary monetary policies.

These forces have enable SPDR Gold Shares ETF (GLD), PowerShares DB Gold Fund (DGL) and Market Vectors Gold Miners ETF (GDX) to reap the benefits.

According to a recent Barron's article, nearly every central bank around the world is aimed at avoiding a too-strong currency and is considering an expansionary monetary policy and printing more currency to shore up their slumping economies and starve off deflation. As a result, the value of respective currencies will decline and push the price of gold up.

On Wednesday, Japan reported to intervene in the currency markets to curb the recent surge in the yen's value by dumping 1 trillion yen onto the market. Additionally, Chinese authorities continue resist a full appreciation of their undervalued currency and many believe that the Fed will further expand its balance sheet for its second round of quantitative easing. Lastly, in Europe, the European Central Bank is still dealing with the effects of the sovereign debt crisis and is trying to curb any threats of a relapse of the crisis.

In addition to this global expansionary policy, gold is likely to see price support from the U.S. monetizing of debt, which is expected to result in inflation and a reduction in the purchasing power of the dollar.

As previously noted, some easy ways to gain exposure to gold include:

  • SPDR Gold Shares, the most actively traded gold ETF.
  • PowerShares DB Gold Fund, which uses futures contracts to gain exposure to the precious metal
  • Market Vectors Gold Miners ETF, which holds companies that are involved in mining of gold such as Barrick Gold Corp (ABX) and AngloGold Ashanti (AU).

Although fundamentals remain positive for gold, it is important to implement an exit strategy which protects from the inherent risks that are involved with investing in commodity driven ETFs. Such a strategy can be found at www.SmartStops.net.

Written by Kevin Grewal in Houston.

At the time of publication, Grewal was long Market Vectors Gold Miners ETF. Kevin Grewal is the founder, editor and publisher of ETF Tutor and serves as the editor at www.SmartStops.net , where he focuses on mitigating risk and implementing exit strategies to preserve equity. Additionally, he is the editor at The ETF Institute, which is the only independent organization providing financial professionals with certification, education, and training pertaining to exchange-traded funds (ETFs). Prior to this, Grewal was a quantitative analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds a bachelor's degree from the University of California along with a MBA from the California State University, Fullerton.

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