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Doug Ehrman
Doug Ehrman
Articles (113)  | Author's Website |

5 Ways To Buy Precious Metals Now

Precious metals are among the most popular investments lately, but most investors shy away either due to significant investment minimums and physical security when holding onto the physical commodity. This is another place where ETFs are appealing. Here is what you need to know about the most popular and liquid gold ETFs today.

iShares Gold Trust ETF (IAU), formerly known as iShares COMEX Gold Trust, has about $9 billion worth of physical gold as its assets under management. iShares Gold ETF provides a 3 year return of 20% and a 1 year total return of just under 10%. iShares Gold ETF is trading near the $15 mark, right in the middle of its 52 week range of $12 - $18. Gold prices hit a record high in September 2011 and the shares of the gold ETFs also soared upward. iShares Gold trusts has JPMorgan Chase Bank as its custodian.

Gold has shown a bull run in the last 11 years, including its biggest rally in 2011. Gold began to lose its glimmer due to a surging dollar on account of the crisis in European countries. Physical gold ETFs have fared better than gold stock ETFs despite gold miners and producers record profits on the basis of high gold prices. Thus, in my opinion, physical gold ETFs are a better bet than gold stocks ETFs.

PowerShares DB Gold (DGL) seeks to track the price and yield performance of the Deutsche Bank Liquid commodity index - Optimum yield gold excess return index. PowerShares DB Gold has net assets of $500 million and holds future gold contracts. Since its holds futures contracts, the price can be affected by the spread between futures prices and spot prices.

PowerShares DB Gold is trading near the $55 mark, right in the middle of 52 week range of $46-$56. PowerShares DB Gold is the only ETF that holds gold future contracts, unlike others such as SPDR Gold Shares (GLD), which hold physical bullion or stocks of gold mining and producing companies. PowerShares DB Gold has a relatively high expense ratio of 0.75%, compared with just under 20% for 3 year and 8.5% 1 year total returns. Both returns are beaten by the general category of precious metals.

iShares Silver Trust (SLV) is a grantor trust that provides investors an easy and non-expensive way to invest in physical silver. The trust issues shares in exchange of silver received by the trust. It has a total of close to $10 billion worth of assets under management. iShares Silver Trust provides a 3 year average return of 46% and a year to date return of almost -11%, compared to just over -5% for the category.

iShares Silver Trust is currently trading near the $30 mark, off 40% from its 52 week high of $48. Silver prices are very volatile and can see a movement of even 5% in a single day. iShares Silver Trust shares are trading below their 50, 100 and 200 day moving average and I believe this is the perfect time for making an investment into silver. Silver demand can see an upsurge in 2012, as the economy is expected to improve and many analysts following silver suggest that in 2012, it may touch the levels of $50.

ETFS Physical Platinum Shares (PPLT) offers investors a simple and cheap way to invest in the (most) precious metal, Platinum. It also provides a secure way for many individual investors to gain exposure to the otherwise prohibitively expensive metal. The price of ETFS Physical Platinum is determined by the spot prices of platinum. ETFS physical platinum shares are trading near the $140 mark, near the low in 52 week range of $133-$189.

Platinum, in comparison to gold and silver, has a selling price near its cost of production, implying lower margins for producers. Although platinum is rarer than gold, it has many industrial uses, most commonly as a catalytic converter in automobile exhausts. Most of the platinum that is mined is used up, unlike gold which is stored in vaults around The world. Since august 2011, ETFS Physical Platinum Shares has seen a significant drop of about 25% and I believe that as the demand for platinum grows, the prices of platinum will see a rise in 2012.

SPDR Gold Shares (GLD) was the very first Gold ETF and remains a popular one among the investors trading on the NYSEArca. SPDR Gold trust has net assets worth $72 billion in gold bullion. SPDR Gold shares are based on the performance and spot prices of Gold bullion in the open market. The custodian for SPDR Gold Shares ETF is HSBC Bank USA. As the equity markets go for a roller coaster ride, precious metals are the one that gain and Gold has proven this time and time again.

SPDR Gold Shares is one of the most actively traded ETF with an average of 13.5 million shares traded in the October to December 2011 period. It is currently trading near the $150 mark with a 3 year average return of 28%. In the last month of 2011, SPDR Gold Shares have been trading below their 50 and 200 day moving average, mainly because of decreasing gold prices, making it a good entry point for those that have been waiting on the sidelines.

ETFS Physical Swiss Gold Shares (SGOL) is a common law trust, whose objective is for its shares to replicate the price of gold and its performance. ETFS Physical Swiss Gold Shares are currently trading near the $160 mark, with net assets of just under $2 billion. As gold prices are inversely related to the world’s stock markets, which fell significantly in the last year, including the S&P 500, which fell down almost 2%, FTSE down 8% as well as Asian markets such as Nikkei, down 17%.

The fall in stock markets fall led investors to invest in gold, which consequently saw gold prices making new highs in the year 2011. ETFS Physical Swiss Gold Shares saw a phenomenal increase of 20% in just three months from July to December 2011, led by high gold prices.

About the author:

Doug Ehrman
Buy low and sell high is easier in theory than in practice– and that’s where we come in.

At Investment Underground, our editors are disciplined, independent thinkers who will inform you when to buy undervalued investments, recognize catalysts, and sell when full value is realized. We provide timely, detailed analysis of our value investing strategies and help you achieve your goals of a reduced-risk trading environment.

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Rating: 3.7/5 (14 votes)


Toppcats - 5 years ago    Report SPAM
Actually meant to rate above article at 1.5/5. While some of the precious metal ETF's MAY be worthwhile, the above author is NOT, in my opinion, providing a correct picture of these ETF's. With GLD, for example, the common investor does NOT have convertibility to gold. Read the prospectus. You must be an 'approved' investor with AT LEAST 100K shares of GLD for the privilege of convertibility. These ETF's do NOT peg precisely to the movement of their underlying constituent metals. These ETF's may actually be responsible for price suppression of the entity that you are taking a bullish position in - this is via several mechanisms - a) given the rapid $ flows - it is unclear if the underlying metal is held at full value of the invested monies. Any shortfall within the ETF of the underlying metal is price dilution. b) there is great concern that some of the metal ETF's are leasing the very same metals that they hold, back into the marketplace. This 'leasing' is a common practice - BUT if the ETF is doing this, then it is actually acting AGAINST the interests of the ETF investors as the leasing creates 'supply' to the market and price suppression. c) Every $ placed into a metal ETF is a diversion of capital away from the gold mining equities which suppresses that sector.

As a simple and easy TRADING vehicle for the individual seeking exposure to precious metals - these ETF's in my opinion are fine. However, for the serious investor seeking precious metals exposure, DIRECT PHYSICAL ownership of the precious metal is really what should be considered - anything else is 'paper' ownership which is simply not the same. For those seeking some leverage a mix of the miners or their ETF's can be considered (the ETF's are ok here as both sides of this trade represent 'paper' exposure to a physical asset).

BTW - if considering direct physical precious metals exposure and ownership, the MF Global debacle has shown that one should really take personal ownership of this investment. This is really not difficult. Liquidity/convertibility is also actually fairly easy - although a bit different than what most equity traders are used to - 'how' one locks in a price for buys/sells and conducts the transaction is actually very easy to learn.

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