Gold and silver have long been considered the ultimate investment to protect your portfolio from an uncertain future. But precious metals’ recent volatility — and movement sometimes with, other times against, stocks — brings to mind a line from baseball great Yogi Berra: “The future ain’t what it used to be.”
As Europe churns, China cools and U.S. jobs data disappoints, conventional wisdom should have gold and silver prices soaring as investors run for safe havens. Instead, gold has been caught in a “stimulus roller coaster,” as Saxo Bank puts it.
Given the recent pendulum swings in gold prices, few folks consider the metal bulletproof. But more Americans still cite gold as the “best long-term investment” compared to any other pick, according to an April 2012 Gallup poll. Although gold has lost some of its glitter since last year’s survey (28% say gold is tops, compared to 34% a year ago), Americans are still feeling the love for the yellow metal.
Bulls and bears will duel to the death over the value of precious metals, but there’s one reason every investor should consider gold or silver: diversification. For most investors, purchasing physical gold or silver as bullion or coins is just too much of a hassle.
The most convenient way to gain precious metals exposure is through stock in companies involved in the industry, or through exchange-traded funds and mutual funds that either invest in the sector or that have physical holdings.
Here are six different ways to play precious metals now — two stocks, two ETFs and two mutual funds:
Gold Stock: Royal Gold
While most popular gold stocks are focused on mining, Royal Gold (NASDAQ:RGLD) is a little different. The company acquires and manages precious metals royalties; its portfolio includes 193 properties on six continents, including interests in 39 producing mines and 25 development-stage projects. In May, it acquired a royalty on International Minerals’ Ruby Hill, Nev., gold mine, which is operated by Barrick Gold (NYSE:ABX), the world’s largest gold producer.
RGLD has run up about 40% in the past 52 weeks, and valuation is a concern. The stock has a price-to-earnings growth ratio of 4.6 and a forward P/E of more than 45, which suggests RGLD is very overvalued. It also has a nominal current dividend yield of 0.8%.
For investors who are nervous that RGLD is overbought, ABX has a forward P/E of only 8, although the PEG ratio of 4 suggests it’s also overvalued. And I have my doubts about ABX in the short term given its recent focus on copper, lower projected gold production and last week’s firing of CEO Aaron Regent.
Silver Stock: Endeavour Silver
Endeavour is a small-cap ($828 million) silver production company that operates two silver mines in Mexico. Last month, the company announced discovery of a new zone of high-grade silver and gold mineralization in its San Sebastian property. EXK is about 30% off its 52-week low in May, before the new find was announced, but it still has an attractive forward P/E of about 9.