Gold stocks hold a valuable place in asset allocation for investors, especially in times of high inflation and economic uncertainty. Investing in gold can be tricky, but one of the best ways to gain exposure to gold is through the S&P Gold Shares ETF (GLD).

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Gold provides a natural hedge against inflation and is regarded as a safe-haven investment during downturns in the economy. Many investors believe gold still has a place in long-term portfolios.

While artificial intelligence stocks have taken a break and bitcoin stocks have been volatile, gold stocks continue to rise. Many gold stocks and ETFs started to rally March 1. The GLD ETF is extended from a buy zone and reached an all-time high Thursday.

Gold prices have soared around 12% this year so far and topped $2,300 per troy ounce. That performance trumps the S&P 500’s nearly 8% gain.

The June gold delivery contract sits near a record high, topping $2,300. Gold futures have gained about 27% since the Oct. 6 low.

Why Gold Is Climbing

The price of gold tends to rise during times of inflation due to its dollar denomination, which offsets the decline in value of the dollar caused by inflation.

Stocks are feeling pressure as inflation hangs on and rate cuts appear to be pushed down the road. This and the rise in Treasury yields are sending investors to alternatives such as gold.

There are a handful of factors boosting gold prices including the expectation of lower interest rates, positive market sentiment, continued geopolitical uncertainty and central bank demand.

The U.S. dollar is weakening and robust gold demand in China is also helping lift prices. Gold got a boost on Wednesday, after Fed Chief Jerome Powell confirmed that the jobs and inflation numbers haven’t changed their overall policy outlook for this year.

“Our base case for the Fed beginning to cut rates by midyear means prices could go higher,” wrote UBS strategists Wayne Gordon and Giovanni Staunovo, Barron’s reported.

Gold can also be a buffer against a bear market, or in the case of an international crisis. The Russia-Ukraine and Israel-Hamas wars are examples.

Gold Stocks: A Way To Gain Exposure

The GLD ETF is not the same as gold mining stocks, which can be volatile. The ETF aims to match the performance of the price of gold bullion, as quoted in London.

GLD has outperformed the S&P 500 this year, gaining around 10% vs. 8% for the S&P 500 through Thursday.

A gold ETF like GLD is only one way to gain exposure to gold. Among the other methods are buying gold itself — through bullion, coins or jewelry — or by buying it as a commodity that can be traded on commodity exchanges.

Another way is by investing in mining stocks like Barrick Gold (GOLD), Franco-Nevada (FNV), Freeport-McMoRan (FCX) or Rio Tinto (RIO).

Barrick Gold is climbing off its 52-week low reached Feb. 14, the day the gold miner gave a mixed fourth-quarter earnings report. Shares rebounded the next day and have risen about 26% since the low as it forms a long double-bottom base with an 18.55 buy point.

Other ETFs that invest in gold bullion include the iShares Gold Trust ETF (IAU), the SPDR Gold MiniShares Trust (GLDM) and Aberdeen Standard Physical Gold Shares (SGOL). Their stock charts look nearly identical to GLD and they are above buy zones of double-bottom bases.

Other Gold ETFs Can Help

It’s also possible to invest in any of the other ETFs that hold gold as one of many precious metals. Examples include U.S. Global Gold & Precious Metals (GOAU) and Aberdeen Precious Metals Basket (GLTR).

You can also hold an ETF that invests in gold mining stocks, such as iShares MSCI Global Gold Miners (RING) or the leveraged Direxion Gold Miners Bull 2X (NUGT), which leverages a gold mining index. Results among gold ETFs have varied during the gold rally, ranging from a more-than 9% gain to a 40% gain.

But some of these gold alternatives have problems from an investor standpoint. For one, by holding gold bullion, coins or jewelry, investors have to worry about a place to store it, insuring it and the chance of it being robbed.

With trading gold as a commodity, there are several costs involved through the exchanges themselves or through brokers. By investing in mining stocks, investors have to keep in mind that they’re investing in a corporation, which requires paying attention to fundamentals and technical analysis and knowing what other products the mining company is invested in.

A Hedge Against The Rest Of Your Portfolio?

In terms of investing in other ETFs that invest in gold bullion, investors have to take liquidity into account. With thinly traded funds, it can be difficult to perform chart analysis. Only IAU, with $28 billion, comes even remotely close to the $60 billion in market capitalization that GLD has.

NUGT trades an average daily volume of nearly 2.9 million shares and SGOL trades around 3 million shares. GLDM trades 3.1 million shares.

If your goal is to invest in gold as a hedge against the rest of your portfolio, or as a tactical investment, then GLD may be a wise choice.

If, however, your interest is to follow the technical signals of GLD’s chart, there are indeed good times to buy or avoid the S&P Gold Shares ETF.

GLD Technical Analysis: Above Buy Zone

The GLD EFT broke out of a double-bottom base with a 191.36 buy point on March 1 in heavy volume, according to MarketSurge pattern recognition. Shares traded around 216 recently, well above the 5% buy zone.

The S&P Gold Shares ETF is volatile. Its 74 Relative Strength Rating has improved from 62 four weeks ago. As a commodity ETF, it has no earnings and also doesn’t pay dividends.

GLD stock also has an IBD Accumulation/Distribution Rating of A, which measures the relative degree of institutional buying and selling the stock has experienced over the last 13 weeks.

S&P Gold Shares can also be used to buy or sell options to generate income. That can be achieved with covered call options, for example. Gold can be unattractive for income investors because it doesn’t have a dividend payment. But using GLD options can enable investors to generate income.

Are Gold Stocks And ETFs A Buy?

With many leading stocks extended, the gold sector offers fresh opportunities. IBD’s current outlook is that the market is in a confirmed uptrend.

Exchange traded funds GLD, GLDM, BAR, IAU, and SGOL are all extended from buy zones of double-bottom bases, therefore they are not actionable.

So watch for proper setups such as pullbacks to a key level, three-weeks-tight patterns or new bases to form.

And for the best stocks to buy or watch, check out IBD Stock Lists and other IBD content, such as how to find the best ETFs.

Follow Kimberley Koenig for more stock news on Twitter @IBD_KKoenig.

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