If you think gold prices will keep rising, these are the must-buy gold and silver ETFs from TSC contributor, Don Dion.
1. The SPDR Gold Shares is the largest physically backed gold ETF.
Dion: Owning this fund is like having fractional ownership in a stockpile of physical gold. Owning the GLD is easier - for many investors - than buying gold bars and putting them in a safe at your house. The only downside is that this ETF is taxed higher than most ETFs - it is taxed as a "collectiIble" (like stamps, gold coins, baseball cards), which can be as high as 26 per cent. This is a great fund - a large liquid ETF, but people should be aware of the tax implications - if they want to trade it.
2. Market Vectors Gold Miners GDX, is a basket of large cap miners.
Dion: This fund tracks large cap firms that are involved in the mining and production of gold. Rather than owning a stockpile of gold, this fund owns the largest gold mining companies. Owning GDX will give you exposure to gold prices, but since miners have things like fixed costs, it won't track the price of gold directly. This is a large liquid fund that offers industry exposure - many of the firms in this fund mine silver, too! Year to date, gold mining companies have actually performed better than the price of gold.
3. Market Vector Juniorsis a basket of small cap miners.
Dion: After the success of its large cap fund, GDX, Market Vectors launched GDXJ, comprises small cap gold mining firms. Picking individual small cap gold firms for your portfolio is a risky proposition - some junior gold mining companies have yet to turn a profit, and stocks are speculative. Owning GDXJ is a way to manage this kind of risk - rather than tying the success of your gold holdings to one particular firm, owners of GDXJ get exposure to a basket of junior gold miners. This way, you can get involved in firms that have an even greater upside potential than their large cap peers, without risking it all on one firm.
Aren't mining stocks risky and volatile?
Dion: I like them because it gives you a leverage play on gold, and I think gold prices are going to move up. I would rather own GDX and GDXJ rather than GLD... You're right it is risky. But by using an ETF you can spread the risk because you own many companies that are developing gold.... These are actual companies with people working and trying to develop gold and silver properties. I'd rather have people working for me and mining the gold rather than just looking at it in the safe or burying it in the ground.
4. iShares Silver Trustis the largest physically backed silver ETF.
Dion: Like GLD, SLV offers fractional ownership in a physically-backed silver trust. Silver is another good metal to diversify your portfolio with, and it is different than gold in that it has industrial applications.... I like silver because it's not at an all time high so it still has plenty of room to run.
5. ETFs Physical Silver Sharesis a newer physically backed silver ETF.
Dion: Back in July, ETF Securities, a global ETF firm, launched SIVR...the first real competition for SLV. SIVR is the same as SLV, in that it tracks a physical stockpile of silver. In order to offer investors something different, ETF securities lowered the expense ratio: the expense ratio for SIVR is just 0.30 per cent, compared with SLV's 0.50 per cent. Even though SLV had a three-year head start, SIVR is already gaining ground. SIVR currently has $174 million in assets.
Your long term price target for gold is $1,296, but what's your short term?
Dion: The fundamentals that underpin this rally have not changed at all. I can give you six reasons why: We have a large deficit spending in the United States; risk of inflation from government-induced demand; we're seeing very strong economic growth in emerging markets;....we continue to see U S dollar weakness, the central banks are buying gold; we continue to see rebounding jewellery demand.
We had a small correction last week.... but I think we are going to see you and investors continue to buy gold as we go into the end of the year. And once we start 2010 many investors look back and want to buy what did well last year and gold and silver will certainly be in the category.