Want Exposure to Gold But Not a Gold Mining Stock?
By Mitchell Clark for Daily Gains Letter |
The one thing that savers and investors have these days is choice. More and more securities come to the marketplace every day and the kinds of investments available to individuals have really improved over the last few years.
One of the most useful, more popular investment vehicles nowadays consists of exchange-traded funds, otherwise known as ETFs. An ETF is a security that trades on a stock exchange, but follows a commodity, an index, or a basket of assets (e.g. an index fund). ETFs can be very useful in diversifying your portfolio as well making a bet without using derivatives. For example, say you want to own some gold in your retirement account because you believe it will appreciate in value, but you don’t want the risk of picking individual gold stocks. Traditionally, you’d have to go into the futures markets and buy an option on physical gold, but nowadays, for most investors, a gold ETF is more practical.
And the choices among gold ETFs are plentiful. In fact, one of the easiest and more popular gold-related investment vehicles is SPDR Gold Shares (NYSEArca/GLD), which is a gold trust ETF that actually owns real gold bars in vaults. Held in the form of 400-ounce gold bars, the gold itself is kept in vaults stored in London and is currently worth approximately $75.0 billion in U.S. dollars according to the trust. Buying shares in this ETF is a bet that gold prices will go higher. It’s also a way to diversify your portfolio using gold as a store of value, while not having to pick an individual gold stock or a futures contract. The SPDR Gold Shares chart appears below:
Chart courtesy of www.StockCharts.com
ETFs have becoming very popular among individual and institutional investors and a whole new crop of them are listed regularly. They’ve become so popular that you can use an ETF to go short, or bet that the price of an asset will fall. There are even ETFs that use leverage. For example, ProShares Ultra Silver (NYSEArca/AGQ) is a silver ETF that doubles the daily performance of the spot price of silver. In a sense, managers of this ETF use futures contracts and/or other derivative securities to provide you with leverage, so you don’t have to go into derivatives markets to do it yourself.
Investing in precious metals like gold and silver is a high-risk investment strategy and an ETF related to these commodities is a good option to consider. One thing I know for certain, we’re going to get more and more ETFs for investors to consider, because they are so useful as investment tools. They are great instruments for individual investors to consider.