Back to main

Three Ways to Get Precious Metals Exposure

Posted
4/4/2013 2:44:00 PM
By: Cabot Heritage Corporation
Referenced Stocks:ETF;GLD;GLTR;PPLT

By Chloe Lutts

Editor of Dick Davis Digests

---

With distrust of banks high, monetary policy easy and a sequence of financial crises still in short-term memory, it's no surprise that many investors today are interested in investing in gold and precious metals as a hedge against inflation, financial panic, geopolitical unrest and other worries. Plus, the recent history of gold and other metals prices is pretty inspiring:

Gold Chart, Cabot Heritage Corporation

If you're one of those investors who would like to hold some of their assets in metals, you could always just buy some gold or silver coins and put them in a safe deposit box. But if you already have a portfolio of stocks or a brokerage account, there are easier ways to get precious metals exposure. Today I have three suggestions from our contributors.

If gold is your preferred flavor of precious metal, the closest thing to buying a bar and putting it in your safe is buying shares of SPDR Gold Trust ( GLD ), the largest physically backed gold exchange traded fund ( ETF ). This fund is designed to closely track the price of physical gold by holding its own reserves of the metal. You can't exchange your shares for gold bars and there are some expense fees, but it's otherwise pretty close to owning gold. Of course, the advantages over owning gold yourself are that the fund is exceptionally liquid and you can buy and sell in your regular brokerage account. GLD was most recently recommended in the Investment Digest by Systems and Forecasts Editor Marvin Appel. Here's part of what he wrote:

"Gold bullion and gold mining stocks have been disappointing investments since gold peaked in August, 2011. Since then, the SPDR Gold Trust ( GLD ), an ETF that tracks the price of gold bullion, has spent most of its time in a trading range from $150- $175. More recently, GLD demonstrated the truth of the adage to buy on the rumor and sell on the news. There was a big run-up in gold from June to September 2012, in anticipation of new Federal Reserve interventions that could potentially stoke inflation. When the Fed policies materialized, GLD sold off. Fortunately, inflation remains tame.

"Now, GLD finds itself near the bottom of its trading range. The current price level nearly coincides with the downside objective from the most recent bearish trendline break. GLD is attractive as a tactical position, assuming as I do that it will remain in the same trading range. It is also attractive as a long-term disaster hedge against the ultimate possibility, likely several years away, that the Fed eventually does force the inflation genie out of its bottle."-Marvin Appel, Systems and Forecasts, 3/15/13

If you like the idea of a physically backed ETF but would like a little diversification among metals, Forbes/ISA Closed End Fund and ETF Report Editor Jack Colombo has a recommendation for you:

"It seems like the world economies are all printing money in order to devalue their currencies and thus be able to pay back debt with cheaper money. Once the trend toward competitive devaluation is established between several countries, paper money won't have as much appeal. The only caveat is that the U.S. dollar may become a safe haven and thus increase in price. But at the current rate of money printing in the U.S., it may convince others that precious metals are the only safe haven.

"Given the uncertainty surrounding paper money, we think additional precious metals are a prudent hedge. There are gold, silver, platinum and palladium physical ETFs. If you can't make up your mind there is a physical ETF that buys them all. The ETFS Physical Precious Metals Basket Shares ( GLTR ) buys and holds four precious metals: gold, silver, platinum and palladium. The physical metal is held by HSBC bank, which conforms to the relevant rules for good delivery for each metal. Each fund share holds 53.6% of gold, 35.4% of silver, 6.5% of platinum and 4.5% of palladium. The shares are currently trading at $90.76, a slight discount of -0.46% off the value of the metals it holds at $91.50. The expense ratio is low at 0.6%. The fund's main value is that it will precisely track a basket of precious metals without the complicating effects of futures contracts. As the apt ticker symbol reminds us, all that glitters is not gold-sometimes it's silver, platinum or palladium."-Jack Colombo, Forbes/ISA Closed End Fund and ETF Report, March 2013

---

Lastly, if you'd like a value proposition along with exposure to metals prices, Intelligence Report Editor Richard Young recently offered an interesting idea based on the relative value of gold and another rare metal. Here's his recommendation, from the latest Investment Digest:

" ETFS Physical Platinum Shares ( PPLT ) -The price of platinum is out of balance and I want you to make an investment. Of the four common precious metals, platinum is the rarest. All the platinum in the world could fit into a decent-sized living room.

"Adding to platinum's allure is the ever-increasing demand for clean air. Automotive catalytic converters need a certain amount of platinum to enable them to clean the toxic fumes from your vehicle's exhaust. Without it, terrible smog and pollution of the Mexico City variety would be the norm in every major city.

"Another platinum price booster is the geopolitical risk associated with the locations of the world's reserves of the metal. About 70% of the world's platinum supply is South African. If you haven't been watching the news, you missed stories of riots and fighting at the mines there last year. The other major platinum supplier is Russia, no stranger to political unrest.

"As you can see on my chart below, the price of platinum is near the bottom of its range when compared to gold historically. Buy a position in ETFS Physical Platinum Shares today."

Platinum vs. gold chart, cabot heritage corporation

-Richard C. Young, Richard C. Young's Intelligence Report, April 2013

Wishing you success in your investing and beyond,

Chloe Lutts

Editor of Dick Davis Dividend Digest