Gold now trades at $1,313 U.S. an ounce and silver at $16.48. Those prices are well below the 2011 highs for both metals, but still above their 2015 lows.
Gold and silver have gained over the last couple years, helped by fears that growing government deficits will lower the value of global currencies. The fundamental distrust many investors have for governments and their currencies traditionally explains the investment appeal of precious metals (and helps explains the recent mania for cryptocurrencies).
However, an improving U.S. economy and low unemployment led the U.S. Federal Reserve to raise interest rates three times in 2017 and again in March 2018. Two more rate hikes are expected this year. That dampens the risk of a falling U.S. dollar and much-stronger inflation. Typically, both of those factors are needed to significantly boost demand for gold and silver.
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However, if you want to hold precious metal stocks, these two ETFs invest in top-quality global miners. With gold, we specifically recommend investing in the metal through gold-mining stocks, rather than buying gold bullion, gold coins, or certificates representing an interest in bullion.
Those investments have hidden costs that dramatically cut their value over time. For instance, gold bullion and coins require insurance and storage, which will be a continual drain on your cash.
Gold-mining stocks, on the other hand, let you profit from increases in the price of gold without these onerous costs. And unlike bullion and coins, dividend-paying gold stocks have the potential to generate income.
We feel the best way to profit from investing in both gold and silver stocks is to look for companies with sound production, positive cash flow and strong prospects. These two ETFs hold companies that best fit this profile.
ISHARES S&P/TSX GLOBAL GOLD INDEX ETF (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 42 gold stocks from Canada and around the world. The ETF began trading on March 23, 2001. Its MER is 0.61%.
The fund’s top holdings include Newmont Mining, 15.5%; Barrick Gold, 10.8%; Franco-Nevada Corp., 9.4%; Goldcorp, 8.9%; Agnico-Eagle Mines, 7.3%; Randgold Resources (ADR), 5.8%; and Royal Gold, 4.2%.
Canadian companies comprise 64.5% of the fund’s total assets, but it also holds miners that are based in the U.S. (20.0%), South Africa (7.1%), the U.K. (5.8%) and Peru (2.3%).
Recommendation in Canadian Wealth Advisor: iShares S&P/TSX Global Gold Index is a hold.
ETFs: Almost 40% of this ETF’s assets are in Canada
GLOBAL X SILVER MINERS ETF (New York symbol SIL; buy or sell through brokers; www.globalxfunds.com) track the Solactive Global Silver Miners Index.
Set up in April 2010, the ETF follows 25 international firms that mine, refine or explore for silver. The fund has 39.1% of its assets in Canada. That’s ahead of Mexico (17.7%), Russia (12.9%), the U.S. (12.5%), South Korea (11.6%) and Peru (6.2%). The ETF has an MER of 0.65%.
The top holdings include Wheaton Precious Metals at 13.5%; Fresnillo plc, 12.5%; Korea Zinc, 12.3%; Polymetal International, 11.5%; Pan American Silver, 5.0%; Coeur Mining, 4.8%; Tahoe Resources, 4.8%; Industrias Penoles, 4.2%; and Hecla Mining, 3.8%.
Recommendation in Canadian Wealth Advisor: Global X Silver Miners ETF is a hold.
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