Is Your Portfolio Ready for $1,500 Gold?
February 6, 2009
Ron DeLegge, Editor
SAN DIEGO (ETFguide.com) – As global economies around the world sputter and world central banks search for the answers, an ancient value of measure appears to have the right circumstances for capitalizing on the chaos. What is it? Gold.
Today, the ounce price of gold bullion rests around $900, but $1,500 could be just around the corner. The misguided monetary policy of central banks that print an endless supply of currency combined with falling asset prices have put gold back into the spotlight. If you’ve never seen or read the Perfect Storm, this is it.
“Compared to a basket of major world currencies, except the U.S. dollar, gold has appreciated handsomely,” states gold trader Andrew Djukanovic. Put another way, investors searching for stable and relative value have found it in gold.
So far in 2009, gold as measured by the SPDR Gold Trust has gained 4.2%. That’s nearly as much as gold’s performance return for all of last year. In 2008, gold rose 4.32% as calculated using Kitco’s London PM Fix prices.
Most mutual funds only offer gold exposure by investing in gold stocks but not in gold itself. Investing in gold is easily accomplished with gold ETFs. Some products are designed to track the price of gold bullion whereas others are tied to the performance of publicly traded stocks that mine for and produce gold.
Let’s analyze a few key gold ETFs:
SPDR Gold Trust (NYSEArca: GLD)
State Street Global Advisors introduced GLD back in 2004 as the first exchange-traded trust linked to the price of gold bullion. The share price reflects 1/10th the price of one ounce of gold bullion. The trust is backed by physical gold, which is stored in the form of London Good Delivery Bars (400 oz.) in a secured vault. GLD has a mammoth $21.6 billion in assets making it the largest gold ETF in the world.
In 2008, GLD had a modest gain of 2.99% compared to a 37.38% decline in the SPDR S&P 500 ETF (AMEX: SPY). GLD’s annual expenses are 0.40%.
Market Vectors Gold Miners ETF (NYSEArca: GDX)
This Van Eck Global ETF follows the Amex Gold Miners Index. The underlying index contains 32 mining stocks and Barrick Gold (13.90%), Goldcorp (10.17%), and Newmont Mining (8.60%) represent the three largest holdings. GDX was one of the first gold mining ETFs and it currently has $2.6 billion in assets.
In 2008, GDX fell 26.65% compared to a 4.32% rise the value of gold bullion. GDX’s annual expenses are 0.59%.
ProShares Ultra Gold (NYSEArca: UGL)
This ProShares ETF aims to deliver twice (200%) the daily performance, before fees and expenses, of gold bullion as measured by the U.S. Dollar fixing price for delivery in London. This ETF is structured as a partnership and it uses a combination of forward and futures contracts to execute its investment strategy.
UGL was launched in December 2008 and its annual expenses are 0.95%.
PowerShares DB Commodity Index Tracking Fund (NYSEArca: DBC)
While not a pure gold ETF or trust, DBC has a larger percentage of its portfolio’s exposure to gold compared to other diversified commodity index funds. The index is composed of futures contracts on six commodities and weighted as such: Light sweet crude oil (35%), Heating Oil (20%), Gold (10%), Aluminum (12.5%), Corn (11.25%) and Wheat (11.25%).
In 2008, DBC fell 30.77% compared to a 4.32% rise the value of gold bullion. DBC’s annual expenses are 0.75%.
Investing in Physical Gold
Beware of the financial extremists that tell you the only way to benefit from rising gold prices is by investing in physical coins, bars, or jewelry. It’s not true.
Gold ETFs allow you to have an ownership stake tied to physical gold, gold futures, or gold equities. In many cases, the cost of acquiring gold exposure through gold ETFs is substantially less than taking physical delivery of gold. Also, the acquisition costs may be less with gold ETFs than with middlemen peddling physical gold. Do the math! Also, keep in mind that gold ETFs allow you to avoid the expense and inconvenience of storage and insurance.
Gold in Your Portfolio
People that made the strategic mistake of investing in gold at it’s peak in 1980 sat on dead money for more than two decades. Don’t make the same mistake! In the context of a diversified portfolio, gold can be successfully used. It may stabilize your ETF portfolio during these unstable times. It may even help you to reach your financial goals. Is your portfolio ready for $1,500 gold prices?
ETFguide’s Ready-to-Go ETF Portfolios have profited from gold exposure. In fact, our ETF Portfolios just finished their third straight year of outperforming major benchmarks like the S&P 500 and MSCI EAFE stock index. Which gold ETFs do we like? Take the time to learn more.
Below is an excerpt from the ETF Profit Strategy Newsletter – Published on Dec 15, 2008
At the time, the Dow was at 8,565. It reached 9,088 before dropping below 8,000.
Short-Term: published on Dec 15, 2008