With increasing global economic uncertainty, precious metals are becoming more popular in recent years. Precious metals like gold and silver used as a hedge against currency devaluation and are also regarded as a “safe” haven during time of economic uncertainty. So, how can you gain exposure to gold and silver?
1. Physical gold & silver
You can buy physical gold and silver in bulk form casted in bars or minted into coins. Physical ownership involves storage, insurance and transactions costs. It is not worth the effort if you are a small investor.
2. Buy stock in company dealing with gold or silver
You can invest in gold mining companies such as Yamana Gold (AUY) and Agnico Eagle Miners (AEM).
The share price of the stock is also subject to the management of the company and may not follow in tandem with the gold and silver price. For greater diversification, you could consider Unit trust or Exchange traded Fund (ETF).
3. Unit Trust or ETF
Unit trust is a fund formed to manage a portfolio of stock exchange securities and is offered by banks, insurance agents or financial advisors.
ETF is a fund that tracks the performance of a basket of stocks or commodities. ETF is traded on the stock exchange and be purchased via internet trading or through your remisiers or brokers.
Advantage of ETF over unit trust
||0.2% to 0.4%
|Exact selling price
I prefer to trade using ETF as its transaction cost is 86% cheaper compared to Unit trust.
The selling price of unit trust is only available after market close as it is based on forward pricing which will only be known after the market closed and the fund manger computes the per unit net asset value of the fund. On the hand, the exact selling price of ETF is available real time based on prices listed on the stock exchanges.
Risk of ETF
ETF is subject to tracking error if the fund does not mirror the underlying index. However, this type of tracking error is generally not significant.
If ETF is quoted in foreign currency, exchange rate fluctuation could also pose another risk.
How to invest during uptrend and downtrend
You could invest in different type of ETFs based on your view on the price trend of gold and silver prices. I have listed some ETF that you could consider:
|SPDR Gold Trust (GLD)
||Proshares UltraShort Gold (GLL)
|Proshares Ultra Gold (UGL)
||Proshares UltraShort Silver (ZSL)
|Ishares Silver Trust (SLV)
|Proshares Ultra Silver (AGQ)
Note: downtrend ETF will have a “Short” as part of its name
Gold and silver investment is volatile; hence I would not invest more than 10% of my capital. Please note that Silver being more volatile than gold is also not for the faint-hearted.
I do not invest in any gold bars or coins but I will continue to hold on to my gold jewellery which will come in handy during any sovereign or bank default.