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I’m of the opinion that precious metals are a small, but important, component of any long-term diversified portfolio. Precious metals are hard assets, and hard assets tend to retain their value over the very long term. There can be extended periods during which the returns may be weak, but they are an especially good thing to hold in weak economic times.
To that end, I generally suggest holding 2% or so in good economic times, boosting it to 4% in bad times, and selling back to 2% as the economy improves. Right now, I would be closer to 4%.
1. One of the easiest ways to establish a position in gold is to go with the SPDR Gold Shares (NYSE:GLD). The idea behind this ETF was to eliminate the natural barriers to actually owning gold bullion – accessing it, holding it, and the cost of the transaction itself. The ETF offers ownership interest in a Trust whose only assets are gold bullion. The bullion itself is only sold to meet Trust expenses. All of the Trust’s gold is held by HSBC Bank in London, the Bank of England, and the London Bullion Market Association. It holds over 25 million ounces of gold, and there’s even a monthly certificate that proves the holdings were inspected. It doesn’t cost a lot to hold this ETF, as it carries an expense ratio of 0.40%.
2. Central Fund of Canada (NYSE:CEF) is a similar play, but it offers diversity by holding silver, as well. The fund holds actual gold and silver bullion in Canadian vaults. There are 1,694,644 ounces of gold worth over $2.22 billion. The fund also holds 76,964,103 ounces of silver, with a value of $1.59 billion. It also holds about $25 million in cash. Like the SPDR Gold Shares, the costs of buying and storing the gold are substantially decreased. The 58-41 gold to silver ratio provides additional diversification in precious metals. Particularly interesting is that the fund trades at a 4.3% discount to net asset value, meaning you can buy the fund for less than its fair market value.
3. ETFS Physical White Metals Basket Shares (NYSE:WITE) offers physical holdings of the white metals: platinum, palladium, and silver. The price of the ETF is base don the spot price of each metal less the Trust’s expenses. The allocation is 48.43% silver, 35.44% platinum, and 16.13% palladium. Like the Central Fund of Canada, the Trust generally trades at a slight premium to its net asset value. Also like CEF, the present price is a .09% discount to NAV. This is a good addition to SPDR Gold Shares to give you complete exposure to all the metals.
4. The ETFS Physical Precious Metals Basket (NYSE:GLTR) takes that concept one step further, in giving you access to all four precious metals in one ETF. It holds 1,566 ounces of gold, 46,471 ounces of silver, 390 ounces of platinum, and 779 ounces of palladium. That breaks down to 48% gold, 22% silvery, 16% palladium and 14% platinum. I actually prefer the combination of GLD and WITE because GLD is much more liquid, and WITE and GLTR have the same lack of liquidity. Still, I think you want to hold all four metals. They are more likely to move in tandem, but the diversification inherent in having four of these instead of one will smooth out the volatility a little bit.
Lawrence Meyers does not hold shares of any security mentioned.
Buy Gold for $400 an Ounce
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