Why Gold ETFs Will Continue to Shine - TheStreet

Why Gold ETFs Will Continue to Shine

With global risk appetite down because of the eurozone crisis and military tensions, funds that offer exposure to gold should continue to gain.
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NEW YORK (

TheStreet

) -- Gold posted its highest close in two weeks, edging closer to the $1,300-per-ounce mark as investors shunned risk because of geopolitical tensions and a falling euro. Global uncertainty is likely to continue, and that should help gold -- and the ETFs that track the metal -- to continue to shine.

Concerns about the eurozone continue to widen with last week's downgrade of Spain's debt.

Ratings agency Fitch cut the nation's debt from an AAA to AA+

.

A further blow came for Europe when the European Central Bank announced that eurozone banks may have to write off loans totaling $240 billion this year and next, which could result in tighter credit markets and slower economic growth.

Additionally, rumors have been floating around that France's debt rating will be the next in the region to get hit with a downgrade. Adding to the uncertainty, German President Horst Koehler recently resigned.

The global appetite for risk is also declining because of military tensions elsewhere, both on the Korean peninsula and in the Middle East,

where Israel's clash with a flotilla of ships carrying aid to the Gaza Strip

has increased friction between the nation and its neighbors.

Gold also is likely to witness further price support from concerns about global economic growth. In China, the Chinese Purchasing Managers' Index (PMI) read 53.9 for May, well below expectations. In India, water scarcity could potentially hinder economic growth. In the U.S., unemployment levels continue to remain elevated, companies remain reluctant to hire full-time employees and the massive oil spill in the Gulf of Mexico has the potential to affect energy prices.

In a nutshell, as long as financial uncertainty prevails and there are geopolitical tensions, gold is likely to continue to see positive price support.

Following are some ETFs that offer exposure to the precious metal:

The

SPDR Gold Trust

(GLD) - Get Report

, which is the world's largest gold ETF and boasted record holdings of 1,267.93 metric tons at the end of last week. GLD closed at $119.91 on Tuesday.

The

Market Vectors Gold Miners ETF

(GDX) - Get Report

, which is an equity play on gold mining companies. GDX includes

Barrick Gold Corporation

(ABX)

,

Newmont Mining

(NEM) - Get Report

and

AngloGold Ashanti

(AU) - Get Report

as its top holdings. The ETF closed at $49.81 on Tuesday.

The

PowerShares DB Gold Fund

(DGL) - Get Report

, which utilizes futures contracts in gold. DGL closed at $43.74 on Tuesday.

Although there appear to be plenty of factors that should continue to buoy gold, it is important to keep in mind the risks that are involved with investing in such a commodity. To help mitigate these risks, we recommend the use of an exit strategy that identifies specific price points at which an upward trend in an asset may come to an end.

According to data at

www.SmartStops.net

, the price points where the aforementioned ETFs may cease their upward moves are: GLD at $115.35; GDX at $47.58; and DGL at $41.92.

-- Written by Kevin Grewal in Laguna Niguel, Calif.

At the time of publication, Grewal was long DGL.

Kevin Grewal serves as the editorial director and research analyst at The ETF Institute, which is the only independent organization providing financial professionals with certification, education, and training pertaining to exchange-traded funds (ETFs). Additionally, he serves as the editorial director at SmartStops.net where he focuses on mitigating risks and implementing exit strategies to preserve equity. Prior to this, Grewal was an 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.