President Barack Obama's first term was very good for precious
metals. Silver was up an eye-popping 236% while gold added an
impressive 128% gain, both handily beating the S&P 500's 75%
return.
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Those big gains have more than a few investors concerned about
anotherasset bubble in a long list of bubbles that includes
technology, finance and housing in the past 12 years.
But according to legendary investor Jim Rogers, the precious
metals crowd has nothing to worry about now that Obama has been
reelected.
The billionaire co-founder of the Quantum fund with George Soros
is telling themarket to expect more of what we've seen in the past
four years. The loosemonetary policy , further quantitative easing
andweak dollar will support the upward trend in gold and silver,
according to Rogers.
"Investors should prepare for rising prices and more
expansionary monetary policy now that President Barack Obama has
won reelection. "If Obama wins, it's going to be moreinflation ,
more money printing, more debt, more spending," Rogers recently
told CNBC. The investor also said he plans to sell federal debt and
purchase more gold and silver.
So if Jim Rogers is correct, then investors should expect big
things from precious metals in the next four years. But with all
kinds of precious metalsinvestments to choose from, the landscape
can be confusing.
With this in mind, here are my three favorite strategies to
benefit from the rising tide in gold and silver, ranked from lowest
to highest risk.
Lowest risk: Physical gold and silver
Investing in physical gold and silver has become very popular in
the past five years with the release of new exchange-traded
products (
ETFs
) such as
SPDR GoldShares (
GLD
)
and
iShares Silver Trust (
SLV
)
. These types of ETFs provide investors with direct exposure to
underlying precious metals prices. These instruments have become
very popular among investors because they have low expense ratios
and reduce company-specific risk related to production
volatility,earnings andcash flow .
ETFs like SPDR Gold Shares and iShares Silver Trust have handily
outperformed most gold and silver mining stocks in the past few
years as investors have bypassed the miners in favor of a more
conservative approach to the market. Longer-term, gold and silver
prices probably have less upside than miners do, but they also
provide more price stability.
Medium risk: Basket of gold miners
The next level of risk up from physical gold and silver is to buy a
basket of mining stocks such as
Market Vectors Gold Miners (
GDX
)
, anotherETF that holds a basket 30 gold- and silver-mining stocks
with operations across the world.
This is another strategy for investors who want to protect their
portfolios from company-specific risk, which is incredibly high in
the gold-mining industry due to production uncertainty and
political troubles in less developed regions of the world. This is
a little more aggressive than investing in actual gold and silver
but lacks the high risk-reward ratio of an individual miner. With a
netexpense ratio of .52%, Market Vectors Gold Miners falls below
the category average of .63%.
Highest risk: Individual miners
This is definitely the highest risk category in the list of
strategies to invest in gold and silver. There is a big difference
between investing in a smaller operation valued between $1 billion
or $2 billion and a global mining powerhouse such as
Freeport-McMoRan Copper and Gold Co. (
FCX
)
and
Barrick Gold Corp. (
ABX
)
, each valued at about $35 billion. Barrick GoldCEO Jamie Sokalsky
has said that every $100 increase in the price of gold will produce
an extra $400 million in cash flow for the world's largest gold
company. This is a great example of the incredibleleverage mining
companies provide to rising precious metals.Bear in mind that
bigger mining companiesoffer more earnings transparency, while
small miners have more upside. Either way, of the three strategies,
this is your highest risk-rewardinvestment .
Risks to Consider:
The biggest risk to gold is a liquidity crunch like the one we
saw in the financial crisis of 2008. The trigger for an event like
that could be Europe, which continues to struggle with too much
debt and shortages of tax revenue. Although the region continues to
combat its financial problems, margins calls for big investment
banks and intuitional traders would weigh on gold and silver.
Action to Take -->
Jim Rogers isbullish on gold and silver, projecting that the next
four years will look much like the last four years for precious
metals. If this turns out to be true, then keep in mind these
investment strategies. All three of them are very effective
tocapitalize on the trend.