Which Gold ETFs Can Help You Hedge Bank Exposure?

 | Mar 20, 2023 09:00AM ET

  • Gold is seen as a safe asset that can be hedged against economic, systemic, and geopolitical risks.
  • Unlike bitcoin, gold has intrinsic value.
  • OUNZ is an ETF for investors wanting exposure to gold without having actually to buy the precious metal. FCX is one of the world's largest gold miners, but shares have recently been decoupled with gold prices due to the sharp fall in copper prices.

    • The fallout from the Silicon Valley Bank implosion and the subsequent contagion fears spread throughout the banking sector. Nearly all bank stocks were affected, with regional banks taking the worst of the selling. For a few days, severe concerns about another 2008 financial meltdown were waiting in the wings as paranoia for another systemic collapse spread like wildfire.

    Like Cyprus repeating all over again, investors frantically moved money into bitcoin, surging it more than 30% in a week. Investors also piled into gold and gold stocks in a flight to safety. Gold stocks may be a more viable option for investors seeking a hedge against further fallout in bank stocks.

    Unlike bitcoin or other cryptos, gold stocks have intrinsic value. Investors may be considering sheltering or hedging their portfolios in gold while the drama with the banking sector plays itself out. Regulatory risk is a genuine possibility as legislators consider changes to tighten regulations for regional banks as they slipped past the Dodd-Frank reforms that big banks had to conform to.

    Another risk looms for the regional banks after Silicon Valley Bank's implosion, Signature Bank's collapse, the First Republic Bank (NYSE:FRC) credit downgrade, and fears of a Credit Suisse Group (NYSE:CS) collapse.

    h2 Gold Safe Haven /h2

    Gold is widely considered a haven investment that can hedge against the economic, systemic, currency, and geopolitical risks. It has intrinsic value. More investors are using it as a hedge, driving up prices. Here are two gold stocks to watch for investors who are still considering hedging their bank stocks.

    h2 VanEck Merk Gold Trust ETF/h2

    Investors that want exposure to gold prices without actually buying the asset can consider moving money into an exchange-traded fund (ETF) like OUNZ. It has over $600 million assets under management (AUM) and suitable liquidity, trading over four million shares daily. It holds gold bullion in the form of London Bars.

    London bars don't refer to drinking establishments. They are the large rectangular blocks of gold you often see in movies, also called Good Delivery bars. They adhere to the stringent standards of the London bullion Market Association (LMBA), which require each bar to contain between 350 to 430 troy ounces of gold, which weighs between 11 to 13 kg), and be 99.5% pure.

    Get The News You Want
    Read market moving news with a personalized feed of stocks you care about.
    Get The App

    These are the world's most oversized standardized gold bars and are highly liquid assets. VanEck Merk Gold Trust ETF (NYSE:OUNZ) is for investors who want exposure to the price action of gold. Investors can take delivery of physical gold bullion in exchange for the shares. Shares are priced low enough for small investors to afford instead of paying over $1,800 per ounce in the actual precious metal. OUNZ is trading up 7.5% for 2023.