We mentioned the $19 billion StreetTracks Gold Fund (NYSEArca: GLD) in an earlier post on commodities ETFs.
Two other precious metal ETFs to consider are both from iShares – the $1.9 billion COMEX Gold Trust (Amex: IAU) and the $3.2 billion Silver Trust (Amex: SLV).
Both trusts provide investors with pro-rata ownership in the precious metals at a cost that is lower than what you pay to purchase, store and insure the physical metals on your own. For example, the gold ETF held 1,969,252 ounces of gold and the silver ETF held 190,589,294 ounces of silver as of May 6.
In addition to being a hedge against inflation, a precious metal ETF is a powerful way to diversify the risk of investing in equities. For example, the beta of IAU to the S&P 500 is -0.16.
There is a watch-out from a paperwork perspective for taxable accounts. For income tax purposes, the trusts are “flow through” meaning that they aren’t subject to taxes – the income and expenses flow through to shareholders.
Throughout the year, the trusts rack up expenses and then sell an appropriate amount of the precious metals to cover those expenses. All of this activity is reportable at the end of the shareholders’ tax year.
Before investing, ask your tax advisor to review the 9 page explanation of how to prepare the appropriate tax forms to see if it will have an impact on your tax preparation bill.