Forbes recently interviewed Jean-Marie Eveillard, the semiretired manager at First Eagle Investment Management, on his use of gold as part of his famously patient approach to value investing.
According to the Forbes piece, Eveillard suggests individuals put 5 to 10% of their assets into gold. Four ETFs listed by Forbes as “smart ways to play” gold include:
iShares Comex Gold Trust (IAU)
Market Vectors Gold Miners ETF (GDX)
Van Eck has built nearly a $10 billion ETF business in only three years according to the WSJ’s Ian Salisbury.
The New York company has expanded its line-up to include more than 20 specialty exchange traded funds. The firm’s first ETF, the Market Vectors Gold Miners ETF (GDX), helps investors gain exposure to gold through the stock market rather than by buying gold directly.
Another Van Eck fund highlighted in the article is the Market Vectors Coal ETF (KOL), a top performer in 2009 after falling 75% in the second half of 2008.
As hedging falls out of favor, gold mining companies and ETFs will become more closely linked to the price of gold.
The WSJ’s Tennille Tracy is reporting that options traders are preparing for increased volatility in the stocks of gold mining companies.
In yesterday’s trading, options investors were establishing a “strangle” position in the Market Vectors Gold Miners ETF (GDX) by buying March $30 puts and March $45 calls. The position will only be profitable if the exchange traded fund trades above $49.60 or below $25.40 before mid-March.
The ETF invests in a broad range of range of small-, medium- and large-cap gold mining companies.
With gold up 30% from last fall and no end in sight for the stream of bad economic news, analysts and investors are flocking to the precious metal.
The Financial Times Alice Ross writes in her column, Investors seek safe haven as good as gold, that Goldman Sachs, Merrill Lynch and UBS are all now predicting that the price of gold will hit at least $1,000 per ounce this year, up from the current levels of around $900.
UK investors are piling into ETFs that offer exposure to physical gold and gold miners. U.S. investors have access to similar ETFs.
The largest physical gold ETF available to U.S. investors is the SPDR Gold Shares (Ticker: GLD), an ETF that reflects the performance of the price of gold bullion less expenses. An ETF that uses futures contracts instead of holding physical gold is the DB Gold Fund (Ticker: DGL).
A U.S. ETF that tracks the Amex Gold Miners Index is the Market Vectors Gold Miners ETF (Ticker: GDX). The ETF invests in small, medium and large-cap gold mining companies.
Monitoring the flow of money into ETFs can provide an early indication of the next market trend.
That’s the conclusion of MarketWatch’s John Spence in his blog post Greenlight’s Einhorn buying options on gold-miners ETF. Spence reports that hedge fund manager David Einhorn is buying call options on the Market Vectors Gold Miners ETF (GDX) in anticipation of future inflation caused by the Fed’s exploding balance sheet.
Spence also points out that record levels of investment are pouring into SPDR Gold Shares (GLD) and into oil funds. A popular oil ETF is the United States Oil Fund (USO).
For more, see the special report Investing in Oil with ETFs or the Commodities ETF Directory.
In the article Gold ETFs Aren’t Glittering Despite Turmoil, Smart Money columnist Dan Burrows points out that gold ETFs are well off of their March highs and are even being outperformed by the stocks of discounters like Wal-Mart (WMT) and Family Dollar (FDO).
The puzzle comes from the fact that central banks around the world are pumping liquidity into the financial system – an act that would normally create the threat of inflation and cause the price of gold to rise.
However, the massive deleveraging that has hit stocks is also affecting gold. Liquidation by hedge funds has brought down commodity prices as well as stock prices according to the article.
Gold ETFs include SPDR Gold Shares (GLD), the COMEX Gold Trust (IAU) and the Market Vectors Gold Miners ETF (GDX).
ETFs where WalMart represents more than 10% of holdings include the PowerShares FTSE RAFI Consumer Services Sector Portfolio (PRFS), the Consumer Staples Select Sector SPDR Fund (XLP), and the Dow Jones U.S. Consumer Services Sector Index Fund (IYC).
Investor’s Business Daily reporter Trang Ho takes a look at the recent action in gold ETFs in the article Gold Yo-Yos As Hope Tempers Fears.
Ho points out that the spot price of gold surged last week as investors moved to commodities as fears mounted in the credit market and the Federal Reserve battled the worsening financial crisis.
Of note, the price of gold fell after the bailouts of Bear Stearns, Freddie Mac and Fannie Mae. However, gold held steady after the bailout of AIG indicating continued uncertainty about the future.
ETFs that invest in gold and silver as well as mining companies include:
Ho also mentions the PowerShares DB Commodity Index Tracking Fund (DBC) as an ETF that holds a diversified basket of futures including light, sweet crude oil, heating oil, aluminum, gold, corn and wheat.
Smart Money’s Rob Wherry recently examined the logic of maintaining commodities exposure in the midst of a major pullback.
The article “Keep a Toe in Commodities Despite Pullback” points out that there are two themes that have been influencing the prices of all kinds of commodities: New emerging middle classes around the globe, and rising energy demand that is outpacing production.
Wherry also points out that investors like Kanaly Trust’s James Shelton likes the inflation hedge commodities provide.
Suggested ETFs and ETNs to consider include:
Energy – United States Oil (USO), United States Natural Gas (UNG), DB Oil ETF (DBO)
Agriculture – PowerShares DB Agriculture (DBA), iPath Dow Jones-AIG Commodity Index Total Return ETN (DJP), iPath S&P GSCI Total Return (GSP)
“Picks and Shovels” – SPDR S&P Oil & Gas Equipment & Services ETF (XES), Market Vectors Gold Miners (GDX), Hard Assets Producers (HAP)
