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Gold Isn’t All That Glitters in ETF Land

Commodities / Exchange Traded Funds Jan 20, 2011 - 09:01 AM GMT

By: Ron_Rowland

Commodities

Best Financial Markets Analysis ArticleWhen most people think “precious metals,” they mean gold. Sure, some other metals are valuable too. But gold is where the real action is, right?

Maybe. But now thanks to continuing innovation by ETF sponsors, it’s getting easier to own and trade some of the lesser-known precious metals. Gold isn’t being left behind, of course. There are new ways to get in on that sector, too.


Today I’m going to tell you about some precious metals alternatives you might not have heard about elsewhere …

Leveraged and Inverse Gold Mining ETFs

In my November 11, 2010 column, Go for the Gold with Mining ETFs, I discussed several ways you can use ETFs to get a piece of the worldwide mining sector. We’ve had a new development since then.

New ETFs let you trade the gold miners in both directions with added leverage.
New ETFs let you trade the gold miners in both directions with added leverage.

In December, DirexionShares came out with 2x leveraged long and short ETFs for the gold mining industry.

Here are the names and symbols:

  • Direxion Daily Gold Miners Bull 2x Shares (NUGT)
  • Direxion Daily Gold Miners Bear 2x Shares (DUST)

These are basically piggybank ETFs that own (or short) shares of Market Vectors Gold Miners ETF (GDX). You can, of course, do the same thing yourself by trading GDX in a margin account. The Direxion ETFs make the process a little simpler.

“Physical” Metals ETFs

ETFs that let you buy exposure to gold and silver are nothing new. SPDR Gold (GLD), iShares Gold (IAU) and iShares Silver (SLV) have been available for years.

Some people fear the gold isn't really there for ETFs.
Some people fear the gold isn’t really there for ETFs.

I like all these ETFs and think they do a fine job achieving their objectives. They have, nonetheless, faced criticism from some elements of the “gold bug” population for allegedly not keeping close enough track of the gold bullion that stands behind their share values.

Enter a new face to take advantage of this niche …

London-based ETF Securities is a big player in the global commodity-based ETF business but only recently expanded into the U.S. market. The firm tries to distinguish its offerings by stressing the “physical” backing of ETF shares by actual bullion.

ETF Securities has physically-backed ETFs covering gold, silver, platinum and palladium.

  • ETFS Physical Swiss Gold Shares (SGOL)
  • ETFS Physical Asian Gold Shares (AGOL)
  • ETFS Physical Silver Shares (SIVR)
  • ETFS Physical Platinum Shares (PPLT)
  • ETFS Physical Palladium Shares (PALL)

All are good ways to gain exposure to uptrends in metals. Accurately tracking spot prices is another great feature of these physically-backed funds — something that most ETFs based on futures contracts don’t have much luck with.

One-Stop Shopping For Precious Metals

For investors who would like to own all these metals but want to keep it simple, ETF Securities offers the ETFS Precious Metals Basket Shares (GLTR). It holds gold, silver, platinum, and palladium in specific fixed weightings.

Each share of GLTR gives you an allocation approximately like this:

  • 0.03 ounces of gold
  • 1.1 ounces of silver
  • 0.04 ounces of platinum
  • 0.006 ounces of palladium

You could do the very same thing by buying SGOL, SIVR, PPLT, and PALL in the right weightings, but then you would have four times as much paperwork. GLTR is a good way to keep your precious metals portfolio both diversified and simple.

“White” Precious Metals ETF Now Available

“White” metals is a nickname for the precious metals that are not yellowish like gold: Silver, platinum, and palladium.

Platinum is one of the
Platinum is one of the “white” metals.

ETF Securities has you covered there, too. ETFS Physical White Metal Basket Shares (WITE) is similar to GLTR, but it excludes gold and has a bigger allocation to platinum and palladium.

Why would you want a precious metals fund with no gold? Possibly because you already own gold in some other form via an ETF or actual bullion buried in your back yard. Also, the white metals have more industrial uses than gold. This ties their price more closely to world economic growth.

Like GLTR, the appeal of WITE is that it gives you quick exposure to this niche. Investors who want to control their specific allocations can buy separate ETFs covering each metal.

Is now the time to jump into precious metals of any color? We’ve seen big gains in the last few years. I think the long-term uptrends can continue, but I also won’t be surprised to see substantial corrections. As always, timing will be critical if you buy any of these ETFs.

Best wishes,

Ron

P.S. For details on getting specific buy and sell instructions on harnessing the world’s most profitable stock markets, exclusively with ETFs, be sure to watch my special new presentation … completely free of charge!

Just turn up your computer’s speakers and click here to view it now.

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.


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