Investors have numerous ways to get their hands on gold. However, purchasing physical gold incurs storage and insurance costs. An easier way to play the precious metal is through ETFs.
If an investor wants to own gold outside of the U.S. and still comply with offshore assets rules, an efficient way to do this is by purchasing the ETFS Physical Asian Gold Shares ETF (NYSE:AGOL). AGOL holds physical gold in trust facilities in Singapore. This is a pure play on the price of gold, as no leverage is used. This structure’s appeal is that the gold is offshore and out of the hands of U.S. regulators. This simple program has two basic reporting responsibilities: the price of gold and the daily count of bars held in the vault. Not much to watch in this ETF.
For the investor that wants more “kick,” the PowerShares DB Precious Metal Fund (NYSE:DBP) ETF uses futures contracts and three-month U.S. Treasury Bills. DBP is based on the DBIQ Optimum Yield Precious Metals Index, which is 80% gold and 20% silver. As of Aug. 31, 2011, this mix has delivered returns of 30.29% in 12 months, 31.68% in 24 months and 17.66% in 36 months.
The leverage of the futures contracts will give investors a ride like a bucking bronco, though, so enter with caution. The returns of the fund do not correlate with the index. The chart below is the index for the past 12 months:
A newcomer to the feeding frenzy in precious metals is the iPath Pure Beta Precious Metals ETN (NYSE:BLNG). BLNG was brought to market on April 20, 2011, and matures on April 20, 2041. This ETN structure allows daily trading like an ETF and, for the long-term investor, a return of principal at the undetermined ending value. How this is done is through the use of futures contracts, at the same 80% gold/20% silver mix, with all cash placed in short-term Treasuries.
Leverage is not fully employed, and management can adjust the futures contracts and rebalance the blend as it sees fit. So far the returns, as of Aug. 31, 2011, have been 10.61% in one month and 16.78% over three months. For someone that has a very long-term view of precious metals and wants a return of principal in about 30 years, this might be a “buy-and-forget” program.