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The Best Funds in Precious Metals


It's better to own them through a fund than not own them at all.


Although some investors argue that deflation is in the cards, I believe there's one step that should be taken just in case the massive amount of capital that's been pumped into the sliding economy causes deterioration in the value of the currency. This step is making sure that one's portfolio has at least one asset that will retain value should the dollar's value drop significantly.

There are several options to go, and a few of the most popular are: the emerging markets, precious metals (today I'd like to focus on ETFs/ETNs/mutual funds) and Treasury Inflation Protected Securities (TIPS).

With TIPS, I'd like to point your attention to the fact that purchasing them makes sense only if you believe that the inflation numbers are correctly representing the situation in the economy. Because I have a hard time believing this (as the way inflation is measured has been changing and is currently -- politely speaking -- suspicious) and because many of my readers share my doubts about the reliability of the official inflation statistics, I can't recommend purchasing TIPS.

This leaves us with the emerging markets and precious metals. The emerging markets provide an interesting way to diversify stock holdings, but given the level of globalization in the financial markets, it is likely that any serious plunge in the US would translate into a similar development on the emerging markets as well.

Therefore, as far as long-term investments are concerned, I still believe that a well-diversivied precious metals portfolio is the best way to go. Like I mentioned earlier, I'd like to focus on the indirect way of owning precious metals, as it is often preferred due to the convenience it involves.

I personally think ETFs and ETNs are a convenient way to trade any market. However, as far as long-term holdings are concerned (which means you would put a lot of money into a particular fund and keep it there for a long time), I believe the default risk involved is a much more important factor than is the case with speculation. Since ETFs/ETNs "add another layer" to the risk pyramid (and by that I mean there's one more entity between you and the place where your money is), I prefer owning stocks and especially metals directly.

However, since ETFs, ETNs, and precious metals mutual funds might still be a preferable way of being in the precious metals market for many investors, I've prepared a list of the most interesting funds that you might be interested in.

Exchange Traded Funds/Exchange Traded Notes:

  • DBP -- based on UBS Bloomberg CMCI Gold Total Return Index. In short, this ETF's performance is a weighted average of gold's and silver's gains with the following weights: 80% gold and 20% silver.

  • DBS -- based on the Deutsche Bank Liquid Commodity Index - Optimum Yield Silver Excess Return™, which tracks the price of silver.

  • DGL -- Deutsche Bank Liquid Commodity Index - Optimum Yield Gold Excess Return™, which tracks the price of gold.

  • DGZ -- 100% anti-gold, moves in the opposite direction to gold. Purchase if you want to profit on gold's decline (not recommended for most investors, as this means taking positions against the main trend).

  • DZZ, GLL -- like above, but these funds involve double leverage. In other words, if gold gains 1%, this fund loses 2%.

  • GDX -- 100% precious metals stocks, based on the GDM Index.

  • GLD, IAU -- price of these funds reflects the value of gold owned by each trust.

  • XGD.TO -- replicates the performance of the S&P/TSX® Global Gold Index, so it offers considerable exposure to Canadian gold stocks.
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Positions in gold, silver
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