Global X Gold Yield ETF (HGY): A High-Yield Play in a Volatile Gold Market

In an era of persistent inflation and geopolitical uncertainty, the Global X Gold Yield ETF (HGY) has emerged as a compelling vehicle for investors seeking both income and diversification. With a forward dividend yield of 5.37% as of August 2025 and a three-year average dividend growth rate of 24.87%, HGY has captured attention as a high-yield play in the gold market. But does this performance justify a long-term investment position? To answer this, we must dissect the ETF's structure, expense ratios, and risk-return profile against the backdrop of evolving macroeconomic conditions.

HGY's Structure: A Gold-Backed Income Engine

HGY is designed to track the price of gold while generating yield through a unique strategy. The ETF holds a significant portion of its assets in SPDR® Gold MiniShares (GLD), which directly backs physical gold bullion. Additionally, HGY employs derivatives—specifically, out-of-the-money options—to generate income. By writing these options, the fund collects premiums that bolster its dividend payouts. As of July 2025, 32.54% of the portfolio was allocated to such derivative strategies, contributing to the ETF's ability to maintain a 5.37% yield in a market where traditional gold ETFs often offer little to no income.

The fund's hedging strategy further enhances its appeal. HGY hedges its U.S. dollar exposure against the Canadian dollar, a critical feature for investors in CAD-denominated markets. This mitigates currency risk, ensuring that dividend payouts remain stable even as the USD/CAD exchange rate fluctuates. The combination of physical gold exposure and derivative income creates a hybrid model that diverges from conventional gold ETFs, offering both capital preservation and yield generation.

Expense Ratios: A Competitive Edge

HGY's total expense ratio of 0.99% (0.89% management expense ratio + 0.09% trading expense ratio) is competitive within the gold ETF space. For context, the average expense ratio for gold ETFs in 2025 is approximately 0.40%, but these typically lack the income-generating strategies that HGY employs. The additional 0.60% in fees is justified by the fund's ability to deliver a 5.37% yield, which far outpaces the 0.5–1.0% yields of traditional gold ETFs. Investors must weigh this against the risk of derivative losses, but HGY's disciplined approach—limiting options to out-of-the-money strikes—reduces downside exposure while maximizing premium income.

Dividend Sustainability: A 24.87% Growth Rate in Context

The 24.87% average dividend growth over three years is nothing short of remarkable. From $0.0272 CAD in February 2022 to $0.06 CAD in May 2025, HGY's payouts have nearly doubled. This growth is underpinned by two factors:
1. Gold's Resilience Amid Inflation: Gold prices surged to $3,500 per ounce in 2025, driven by central bank purchases (notably by China and emerging markets) and a weaker U.S. dollar. HGY's direct exposure to gold ensures that rising prices translate into higher NAVs, which can support larger dividends.
2. Derivative Premiums: The options-writing strategy has consistently added to the fund's income. With 100% of options out-of-the-money by month-end, the risk of significant losses is minimized, allowing HGY to reinvest premiums into its gold holdings or distribute them to shareholders.

However, sustainability hinges on macroeconomic conditions. If the Federal Reserve's rate hikes reverse and real interest rates turn positive, gold's appeal as a non-yielding asset could wane. Yet, HGY's hedging and derivative strategies provide a buffer. For example, central bank gold purchases in 2025 added a structural floor to prices, ensuring that even in a low-inflation environment, demand remains robust.

Risk-Return Profile: Volatility and Correlation

Gold's historical volatility (average 13% over five years) is lower than equities but not negligible. HGY's performance is closely tied to gold prices, which have exhibited spikes during periods of uncertainty (e.g., the 2020 pandemic or the 2022 Russia-Ukraine conflict). However, gold's low correlation with equities (-0.09 over 25 years) and its inverse relationship with the U.S. dollar (-0.5) make HGY a valuable diversifier.

Interest rate sensitivity remains a key risk. Gold typically underperforms when real rates rise, as the opportunity cost of holding non-yielding assets increases. Yet, HGY's 2022–2025 performance defied this trend, with gold prices outpacing fair value estimates by $788 per ounce. This was driven by central bank demand and geopolitical tensions, which offset the drag from higher rates. If the Fed's tightening cycle slows in 2026, as markets anticipate, gold—and by extension HGY—could see renewed momentum.

Macro Tailwinds: Inflation, Central Banks, and Geopolitics

The Federal Reserve's 2025 policy of maintaining rates at 4.25–4.50% has created a stagflationary environment, where inflation (core PCE at 2.5%) persists despite high rates. This dynamic favors gold, as investors seek hedges against currency depreciation. Additionally, central banks purchased over 1,000 tonnes of gold annually from 2022–2024, with China continuing its accumulation in 2025. These purchases have structural implications, ensuring that gold's price floor remains intact even as monetary policy tightens.

Geopolitical tensions, including U.S. trade policies and regional conflicts, have further bolstered gold's safe-haven appeal. The U.S. dollar's underperformance in 2025 (its worst start since 1973) has made gold relatively cheaper in other currencies, driving demand from international investors. For HGY, this means a dual benefit: higher gold prices and increased ETF inflows.

Investment Thesis: A Long-Term Play?

HGY's 5.37% yield and 24.87% growth rate make it an attractive option for income-focused investors, but its long-term viability depends on three factors:
1. Continued Gold Demand: Central bank purchases and geopolitical tensions must remain strong enough to offset the drag from higher real rates.
2. Derivative Strategy Resilience: The options-writing approach must continue to generate consistent premiums without exposing the fund to significant losses.
3. Expense Ratio Efficiency: HGY's 0.99% fee must remain competitive as other gold ETFs adopt similar income strategies.

For investors with a 5–10 year horizon, HGY offers a compelling risk-reward profile. Its combination of gold exposure, yield generation, and currency hedging positions it to outperform in a stagflationary or recessionary environment. However, those with shorter timeframes or low risk tolerance should consider allocating a smaller portion of their portfolio to HGY, given its volatility and sensitivity to macroeconomic shifts.

Conclusion: Balancing Yield and Risk

The Global X Gold Yield ETF is a testament to the evolving nature of gold investing. By blending physical gold holdings with derivative income and currency hedging, HGY has created a unique niche in the market. Its 5.37% yield and 24.87% growth rate are not just numbers—they reflect a strategic response to inflation, central bank policies, and geopolitical uncertainty. While risks remain, particularly around interest rates and gold price volatility, HGY's structure and performance suggest it is well-positioned to sustain its dividend growth in the long term. For investors seeking a high-yield, diversified play on gold, HGY warrants serious consideration.