TheFederal Reserve Bank has been pulling out all the stops to
help the U.S.economy gain strength, but many fear the Bank's
aggressive moves eventually could lead to a serious backlash.
We spelled out those concerns in this article, and thoughthe Fed
's bold $1 trillion move hasn't led to ruinousinflation just yet,
many inflation hawks have been loading up on gold and silver --
just in case.
Of course, buying and storing gold and silver bullion is no
simple task. That's why many investors prefer to own these two
commodities through exchange-tradedfunds (
There are a wide range of options, and here's a quick primer on
The metal or the miners?
ETFs focus on gold and silver miningstocks , as well as the
commodities themselves. If you want to own the mining companies,
then you need to differentiate between two camps: Industryinsiders
call them "senior miners" and "junior miners." The senior miners
already own many productive mines, and sell tons of gold and silver
every year. They are fairly mature and already generate prodigious
streams ofcash flow , so investors are able to analyze these stocks
in a more traditional way, using measures such asprice-to-earnings
ratio (P/E ) andprice-to-book ratio (P/B) .
The junior miners are smaller, development-stage companies and
own mines that have yet to be developed. These companies typically
have little or no sales yet, so investors are left to assess
thereal estate value of those mines and try to anticipate what
future cash flows might look like.
Why take a chance on junior gold miners if they are absorbing
ongoing losses? Because investors tend to discount their value
while mine development gets under way -- and if the mines turn out
to have a mother lode of gold, the company'sstock can soar far
There are a wide number of options forETF investors looking at
this sector. Theinvestment management firm Van Eck, for example,
offers theMarket Vectors Gold Miners ETF (
) and the
Market Vectors Junior Gold Miners ETF (
. The firstfund focuses on big miners such as
Barrick Gold (
, while the latter focuses on development-stage mining
In a similar vein, the
Global X Silver Miners ETF (
ownsshares of many of the leading silver mining companies in
Canada, the United States, Mexico and South America.
Skip the miners?
Mining companies don't always rise or fall in value in tandem with
gold and silver prices. These firms incur hefty expenses to
complete their mining efforts, and their profits are therefore not
directly correlated with the underlyingcommodity prices.
That's why some investors prefer to own the precious metals
themselves, which you can also do through ETFs. For example, the
iShares Gold Trust (IAU)
, carries a very reasonable 0.25%expense ratio and moves in
lockstep with gold prices.
Perhaps the most populargold ETF is the
SPDR Gold Shares (GLD)
, which trades a hefty 9.6 million shares a day. Each share
represents roughly one-tenth of an ounce of gold. However, the
slightly higher 0.40% expense ratio for the SPDR Gold Shares may
make the iShares Gold Trust the wiser choice if you plan to trade
in and out of these funds.
If you're reallybullish on gold, check out the
PowerShares DB Gold Double Long ETN (DGP)
. It is a leveraged 2X fund (it's called 2X because it moves up and
down double the rate of the price of gold) based on the price of
gold, helping it to post stellar gains as gold has rallied in
recent years. Yet you should be looking at this fund only if you
are anticipating a solid upward move in gold, as the fairly high
0.75% expense ratiowill eat into returns.
Think gold is due for a pullback after multiyear gains? Check
PowerShares DB Gold Double Short ETN (DZZ)
, which moves in the opposite direction of gold prices.
Several silver-focused ETFs also are tied to the commodity
price, and not theprofit results of silver mining firms. The
Silver Trust ETF (SLV)
is the most popular, trading more than 10 million shares per day
and with nearly $10 billion in assets under management.
Yet if you're especially bullish on silver prices, check out the
ProShares Ultra Silver ETF (AGQ)
. This fund trades more than 1 million shares daily and moves at
twice the rate of the underlyingspot price of silver. A quick
glimpse of the price chart for this ETF shows a steady decline ever
since silver prices peaked in early 2011.
The current price, near multiyear lows, might prove to be a
great entry point for far-sighted investors who think silver prices
will trend higher again in comingquarters .
Action to Take -->
These ETFs provide exposure to the metals and the miners and
typically carry expense loads that are far lower thanmutual funds
focused on thisasset class . If you think the Federal Reserve's
aggressive actions are generating too much risk for the U.S.
economy, then these ETFs should provide a solidhedge .
This article originally appeared on InvestingAnswers.com:
The Simplest Way
To Profit From Gold And Silver Right Now