Precious metal ETFs have largely centered on gold stocks. We continue to see the outlook for that precious metal as positive, and for aggressive investors who want to hold precious metal ETFs, including a silver ETF, we have two of them below.
Most precious-metal stocks dropped, along with stock markets, in March 2020. They then quickly reversed that trend to soar for investors, in part because of gold’s appeal as a “safe harbour” in uncertain times. In fact, in August 2020, gold jumped to over $2,000 U.S. an ounce for the first time ever. Gold stocks also jumped.
More recently, gold has risen on easing inflation and strong expectations any cut in interest rates will also cut demand for the U.S. dollar as a safe harbour. As a result, gold is now benefiting from its traditional role as a safe harbour for investors.
We also expect gold- and silver-loving markets in Asia to continue their post-pandemic rebound. That should spur gold and silver purchases, taking precious-metal stocks even higher.
We think top gold and silver stocks have much more growth to offer savvy investors. The following ETFs let you tap that growth through top-quality global miners. We see both funds as buys.
What is the difference between physical vs. futures-based precious metal ETFs?
Physical precious metal ETFs own actual bullion stored in vaults, while futures-based precious metal ETFs use derivative contracts to track metal prices, introducing additional costs, counterparty risks, and potential tracking errors due to futures roll and contango/backwardation effects.
How easily can a precious metal ETFs be bought and sold?
Most precious metals ETFs trading on the TSX offer excellent liquidity with narrow bid-ask spreads during regular market hours, allowing for easy buying and selling through any brokerage account.
How can precious metal ETFs be used to diversify a portfolio and hedge against inflation or economic uncertainty?
Precious metal ETFs act as portfolio diversifiers because they typically have low correlation with stocks and bonds, providing a hedge against inflation due to their intrinsic value, while also serving as a safe haven during economic crises, geopolitical tensions, and currency devaluations.
How do geopolitical events, economic conditions, and central bank policies affect the price of precious metals and the performance of related ETFs?
Geopolitical tensions, particularly conflicts and trade wars, drive investors toward precious metals as safe havens, while dovish central bank policies like rate cuts and quantitative easing typically boost metal prices by reducing opportunity costs and raising inflation concerns, and economic downturns generally benefit gold and silver ETFs as wealth preservation becomes prioritized over growth assets.
ISHARES S&P/TSX GLOBAL GOLD INDEX ETF,is a buy for aggressive investors.The fund(Toronto symbol XGD; buy or sell through brokers; ca.ishares.com)aims to mirror the performance of the S&P/TSX Global Gold Index; it’s made up of 51 gold stocks from Canada and around the world. The ETF began trading on March 23, 2001. It charges investors an acceptable 0.61% MER.
The fund’s top holdings include Newmont, 17.8%; Barrick Gold, 13.0%; Agnico Eagle Mines, 12.3%; Franco-Nevada Corp., 10.4%; Wheaton Precious Metals, 9.3%; Gold Fields Ltd., 5.7%; AngloGold, 3.9%; and Royal Gold, 3.4%.
The ETF cuts risk for investors by focusing on politically stable mining jurisdictions: Canadian firms comprise 63.4% of the fund’s assets, followed by the U.S. (21.7%) and South Africa (11.3%).
What silver investors should consider buying
[ofie_ad]
GLOBAL X SILVER MINERS ETF, is a buy for aggressive investors. The fund (New York symbol SIL; buy or sell through brokers; www.globalxfunds.com) tracks the Solactive Global Silver Miners Index.
Set up in April 2010, the ETF gives you exposure to 32 international firms that mine, refine or explore for silver.
The fund has 65.6% of its assets in Canada. That’s ahead of the U.S. (9.7%), the U.K. (6.8%), Peru (6.5%), South Korea (5.6%) and Mexico (4.9%). Investors in the ETF face an acceptable MER of 0.65%.
The quality of the fund’s top holdings should drive your future gains: Wheaton Precious Metals represents 22.8% of total assets; Pan American Silver, 12.9%; Buenaventura, 9.4%; Korea Zinc, 7.9%; Industrias Penoles, 5.6%; Hecla Mining, 4.1%; First Majestic, 4.1%; and Fresnillo plc, 3.6%.
Recommendation in Canadian Wealth Advisor: iShares S&P/TSX Global Gold Index and Global X Silver Miners ETF are buys.
For our view on how to make the best selection in individual gold stocks, read 9 ways to spot the best gold stocks with the lowest risk.
For a recent report on how to judge whether an ETF is right for you, read When an ETF investment is the right choice.
How attractive are precious metal ETFs as an investment compared to individual gold or silver stocks?
This post was originally published in 2014 and is updated regularly.
