6 Ways to Play Precious Metals Right Now

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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 Silver (NYSE:EXK) is one of two silver stocks I like right now. To learn about the other, Silver Wheaton (NYSE:SLW), read InvestorPlace Editor Jeff Reeves’ breakdown.

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.

Gold ETF: iShares Gold Trust

If you’re looking for an ETF that’s backed by physical gold holdings, iShares Gold Trust (NYSE:IAU) might just fit the bill. Its $8.8 billion in assets consist of physical gold bullion. IAU offers an excellent way to gain physical gold exposure without buying coins or bullion — one share of IAU is equal to approximately one-tenth of an ounce of gold

ETFs typically have lower fees than mutual funds –- in IAU’s case, expenses are just 0.25% — and also offer enhanced liquidity in that they trade like stocks over an exchange. IAU is bouncing off a low in May and currently is up about 3% year-to-date.

Silver ETF: iShares Silver Trust

iShares Silver Trust (NYSE:SLV) is to silver what IAU is to gold. The fund holds $8.7 billion worth of physical silver bullion in trust, with each share of this ETF equaling 1 ounce of silver, less applicable fees. The expense ratio of 0.5% is double that of IAU, but still relatively low. Bears mauled SLV last year to the tune of 23%, but it has bounced back by about 3% in 2012.

I think SLV is headed up for two reasons: It’s time for a rally in commodity prices in general, and there are enough scary things happening in Europe, China and the U.S. to give the more affordable white metal a bounce. Besides, any big rise in gold prices probably will have coattails for silver.

Gold Mutual Fund: Gabelli Gold Fund

The big debate over whether mutual funds or ETFs are the better investment won’t be settled soon. As is the case with all investments, the best choice depends on your specific objectives.

On the one hand, mutual funds tend to have higher expenses than ETFs, higher minimum investments and lower liquidity because they don’t trade over a major exchange. However, the best mutual funds are larger, have been around longer and are actively managed with a specific objective in mind — and often by rock-star fund managers. ETFs usually are passively managed, and many track major indices.

That brings us to Gabelli Gold Fund (MUTF:GOLDX), which has been around since July 1994 and has been managed since its inception by Caesar Bryan, partner and international equity manager in GAMCO’s Alternative Investment Group. Bryan’s expertise — and GOLDX’s focus — is on international equities. The fund’s top four holdings are Randgold Resources (NASDAQ:GOLD), Fresnillo PLC, Newmont Mining (NYSE:NEM) and Goldcorp (NYSE:GG).

Gabelli Gold Fund is down nearly 15% in the past year, but has gained more than 6% in the past month. The minimum initial investment is $1,000, and its expense ratio is nearly 1.5%

Silver Mutual Fund: Tocqueville Gold Fund

I know it seems odd, but my favorite silver mutual fund is John Hathaway’s Tocqueville Gold Fund (MUTF:TGLDX) because it’s well-diversified and Silver Wheaton is one of its top five holdings. Other holdings include Goldcorp, Newmont Mining and Eldorado Gold (NYSE:EGO).

The fund has been around since 1998, and Hathaway — Tocqueville’s senior managing director — has been managing it from the start. The fund has $2.1 billion in assets under management and focuses on long-term capital appreciation by investing largely in precious metals mining and processing stocks.

The minimum initial investment for Tocqueville also is $1,000, and its expense ratio is 1.25%. TGLDX has shed 17% in the past year, though it has clawed back about 5% in the past month.

As of this writing, Susan J. Aluise did not hold a position in any of the investments named here.


Article printed from InvestorPlace Media, https://investorplace.com/2012/06/6-ways-to-play-precious-metals-right-now/.

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