Precious Metals Post Banner Year
Ron DeLegge
December 30, 2010

SAN DIEGO (ETFguide.com) – For precious metals 2010 was a good year. ETFs linked to gold (NYSEArca: IAU) climbed by 28 percent in value while silver (NYSEArca: SLV) soared by around 80 percent. How does that compare to other major investment categories?

Let’s look at some of the reasons behind the big move in precious metals.

Europe’s Financial Turmoil
The ongoing sovereign debt crisis in the euro-zone is not just a threat to Europe but to the global economy. Even though European stocks (NYSEArca: VGK) will probably post around a 5 percent gain this year, over the past three years, euro stocks have lost almost 9 percent in value. The intermediate performance for euro stocks indicates the losses may not yet be over. 

Meanwhile, the euro dollar (NYSEArca: FXE) has decline roughly 8 percent over the past year. And as the financial solvency of bigger nations like Spain (NYSEArca: EWP) and Italy (NYSEArca: EWI) are tested, more turbulence for the euro is probably still ahead. As a result, precious metals have gained favor as haven.

Asset Diversification
One could argue the recognition of precious metals as an important asset class by investors and financial professionals has contributed in part to the rise in precious metals. To some extent, this recognition has been peaked by performance chasing, but thus far higher metal prices have led to higher metal prices. 

More investors are opting to use precious metals ETFs like the SPDR Gold Shares, (NYSEArca: GLD) which charges annual fees of just 0.40%. GLD has amassed $58 billion in assets and is now the second largest ETF by assets in the world. Competing ETFs like IAU reduced their annual expenses in an attempt to attract more assets. The trend of lower fee precious metals ETFs has been a positive development for investors.

More Product Choices
Realizing the growing interest in precious metals, more investment firms are launching new products targeting the area.

This year saw the release for a number of innovative products like the ETFS Physical Precious Metals Basket Shares (NYSEArca: GLTR) which holds exposure to gold, silver, platinum and palladium in a 4-for-1 package. GLTR could be a good diversified choice for investors who want to play the broader precious metals market as opposed to just one metal. Also, since it holds physical bullion it avoids problems like contango that plague commodities funds that get their metals exposure using futures contracts.

Mining stocks (NYSEArca: GDX) and small cap mining stocks (NYSEArca: GDXJ) have followed this year’s big move in precious metals.   

Direxion Shares introduced both bull and bear ETFs on gold mining stocks. The Direxion Shares Daily Gold Miners Bear 2x Shares (NYSEArca: DUST) attempts to double the daily inverse or opposite performance of mining stocks whereas the Direxion Shares Daily Gold Miners Bull 2x Shares aims to double the daily performance of mining stocks.