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With all the turmoil that the world's financial system has gone through over the past several years, more investors than ever are turning to precious metals in order to guard against a catastrophic loss of confidence in paper money. But until recently, investing in precious metals was difficult and burdensome. Now, though, you'll find a diverse set of exchange-traded funds designed to make owning precious metals a lot easier than it used to be.
Cutting out the middleman
In the past, investors had two primary ways to make investments in precious metals. One was simply to buy mining companies that produced whichever metal the investor was interested in. So if you thought silver prices were on the rise, you'd buy shares of Silver Wheaton. Or if platinum and palladium were your metals of choice, then a company like Stillwater Mining might give you the answer you were looking for.
Buying miners actually has some advantages. In some cases, you can earn a dividend on your stock investment. But the problem with mining companies is that their share prices don't always move in tandem with the price of the metals they produce. If your miner has a company-specific problem, for instance, its shares could plummet even if precious metals prices are skyrocketing. Ask shareholders in Taseko Mines, for instance, if they're happy about their investment in light of its regulatory problems in getting a major mining project approved.
Alternatively, you can buy bullion coins direct from a coin dealer, or invest in futures contracts. But in addition to paying a premium for physical bullion coins, you also have to figure out how to store them. And with futures contracts, you may end up with far more exposure than you actually want. Investors who want modest precious metals exposure needed a better solution.
The emergence of exchange-traded funds has made investing in precious metals a whole lot easier. If you want to buy gold, you actually have several choices among gold ETFs. The SPDR Gold Trust (NYSE: GLD ) offers shares whose value corresponds to roughly 1/10 of an ounce of gold, whereas the iShares Comex Gold (NYSE: IAU ) ETF has shares that correspond to the value of 1/100 of a gold ounce.
One concern about gold ETFs has centered around whether they actually own as much gold as their outstanding shares represent. In response to these concerns, the Sprott Physical Gold Trust (NYSE: PHYS ) gives investors the right to redeem their shares for actual gold bullion, subject to certain conditions.
If you like your metals white
Not all that glitters is gold, and interest in other precious metals has skyrocketed along with gold's fortunes. For silver investors, each share of the iShares Silver Trust (NYSE: SLV ) has a value close to 1 ounce of silver.
Even the platinum group metals have gotten into the picture. The ETFS Physical Platinum (NYSE: PPLT ) and ETFS Physical Palladium (NYSE: PALL ) roughly equate to 1/10 of an ounce of platinum and palladium, respectively.
You can even find ETFs that give you a one-stop shop of all metals. Each share of the ETFS Physical Precious Metals Basket (NYSE: GLTR ) includes roughly 0.03 ounces of gold, 1.1 ounces of silver, 0.004 ounces of platinum, and 0.006 ounces of palladium. At current prices, that corresponds to an allocation of about 50% gold, 35% silver, 8% platinum, and 5% palladium.
Ease of use
The benefit of all of these ETFs is how easy they make buying and selling precious metals. When you go to sell bullion coins at a coin dealer, you might receive far less than you paid for them even if the underlying metal price hasn't moved.
Moreover, ETFs let you invest in precious metals even in tax-favored accounts like IRAs. Most IRA providers won't let you trade futures in a retirement account, and you may have to find specialized financial institutions that are willing to hold the select set of bullion coins allowed within IRAs. But precious metals ETFs fit in IRAs just as easily as any other ETF or stock.
So whether you have the gold bug or just want to add some diversity to your portfolio, consider the wide range of precious metals ETFs. They've made it a lot easier for investors to get the precious metal exposure they want.