3 Ways to Invest in the Next Gold Rush

by Richard Young | September 8, 2010 2:02 pm

3 Ways to Invest in the Next Gold Rush

Gold prices are back on the rise, and gold stocks, ETFs funds and other investments are again making headlines. And with good reason – the bottom line is that we are in for some rampant inflation in the years ahead. Gold is one of the very few ways to ensure your nest egg won’t erode away.

I just paid $2.59 for a pack of 2010 Topps Baseball cards. I remember exactly where I was when the first full-size set of Topps hit the streets in 1952. It was in the little convenience store across from my Cleveland Heights elementary school, Noble Road School. For 5 cents, I got a pack of cards that included a pink slab of white powdered gum. Had I plunked down $2.59 back then, I would have had 51 packs to open and four cents in change. Fifty-one packs and change down to a single lonely pack sans any neat slab of white powdered gum. Kind of makes one want to cry, doesn’t it? Baseball cards and movie prices tell you all you need to know about inflation. Those living on a fixed income are facing a frightening future.

And lest you believe that deflation is our fate, just look at the rock-bottom interest rates and runaway spending in Washington and you’ll see that we have nowhere to go but up.

So where to turn? There are a number of gold investments I like right now as a hedge against inflation.

Gold Shares ETF

First up is the SPDR Gold Shares ETF (NYSE: GLD[1]). This ETF fund invests in gold bullion, and gold bullion only. That means you’re getting a pure play on the yellow stuff. SPDR Gold Shares are up significantly YTD, a +14% return vs. a flat market, and up +25% in the last year compared to less than +10% for the Dow. Gold is in a secular bull market. The metal has increased in value for 10 straight years, so your nest egg will be safe with GLD.

Global Materials ETF

Now, as a rule I am not a big fan of miners since they can be cyclical and often offer meager dividend yields – if paying dividends at all. But you can spread your risk around and capitalize on the broader gains of other commodities like silver, copper and steel via materials ETF. My favorite is the iShares MSCI S&P Global Materials Sector Fund (NYSE: MXI[2]) since it has a global flavor. Top holdings include mining giants BHP Billiton (NYSE: BHP[3]), Rio Tinto PLC (NYSE: RTP[4]) and Vale (NYSE: VALE[5]), along with more focused gold miners Barrick Gold Corp. (NYSE: ABX[6]) and Newmont Mining Corp. (NYSE: NEM[7]) among others.

Buy Gold Itself

While it’s not practical for many folks, I am fine with you allocating some of your retirement funds to actual hard assets like gold coins. In fact, I always recommend that investors keep 10% of their portfolio in gold and foreign currencies — and if you have the will and the space to store actual currency in your home, be my guest. Just remember that buying in selling gold retail can be difficult. Then again, if all heck breaks loose with our economy you may enjoy having some of your investments close at hand instead of out there in cyberspace or on a piece of paper.

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Endnotes:
  1. GLD: http://studio-5.financialcontent.com/investplace/quote?Symbol=GLD
  2. MXI: http://studio-5.financialcontent.com/investplace/quote?Symbol=MXI
  3. BHP: http://studio-5.financialcontent.com/investplace/quote?Symbol=BHP
  4. RTP: http://studio-5.financialcontent.com/investplace/quote?Symbol=RTP
  5. VALE: http://studio-5.financialcontent.com/investplace/quote?Symbol=VALE
  6. ABX: http://studio-5.financialcontent.com/investplace/quote?Symbol=ABX
  7. NEM: http://studio-5.financialcontent.com/investplace/quote?Symbol=NEM
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