Gold ETFs and other precious metal trades are in favor for good reason. Gold ETF investments can be a hedge against market declines and rising inflation.
In 2018, a lot of investors are worried about a market decline. Stocks started the year alright, but then we saw steep drops in February that shook investor confidence.
Similarly, inflation fears have cropped up after some recent readings were elevated, and the U.S. Federal Reserve has said it may need to increase rates further to keep things in check.
But while inflation pressures are certainly no fun for U.S. consumers and businesses, they aren’t all that bad for commodity stocks. And one piece of this sector that should do particularly well is precious metals.
After all, if you’re afraid about a market downturn then stashing your money in gold or silver can be a great way to protect your assets. If that downturn is caused by rising prices, including rising precious metal prices, then all the better.
If you’re worried about a decline in 2018, then, consider the following ETFs as a hedge. All seven are focused on various precious metals — including gold, but also some lesser-known commodities.
Best Gold ETFs and Precious Metal Hedges #1: ETFS Physical Platinum Shares (PPLT)
When most investors think of precious metal investing, they think of gold and silver. However, one of the most valuable precious metals out there is platinum, and the ETFS Physical Platinum Shares (NYSEARCA:PPLT) should be on your radar as a result.
This ETF invests in physical platinum and nothing else, giving you as pure a play as you can on the metal — short of taking delivery of actual platinum bars, of course.
Platinum currently trades at about $950 an ounce. It’s a “noble metal,” meaning it is one of the least reactive metals on the planet and is highly resistant to corrosion. Because it’s shiny and durable, platinum is a mainstay of jewelry and will not fade like white gold.
But since platinum is so stable, it also has industrial uses — primarily in catalytic converters that are part of automobile exhaust systems.
Best Gold ETFs and Precious Metal Hedges #2: ETFS Physical Palladium Shares (PALL)
Another precious metal you may want to consider is palladium.
Like platinum, this lustrous silvery metal is not as high profile as gold or silver, but still trades for roughly $1,000 an ounce. And also like platinum, its stable chemical properties make it desirable for industrial uses in addition to being minted in coins and precious metals for investors.
The ETFS Physical Palladium Shares (NYSEARCA:PALL) allows you to invest directly in physical platinum without worrying about taking delivery of the metal.
And while you may have some luck taking gold or silver coins to a local pawn shop to redeem for cash, chances are if you bought physical palladium coins you may have a much harder time getting a trustworthy and knowledgeable merchant to redeem them for cash.
Best Gold ETFs and Precious Metal Hedges #3: VanEck Vectors Gold Miners ETF (GDX)
One of the most popular ETFs for precious metals investors, the VanEck Vectors Gold Miners ETF (NYSEARCA:GDX) follows the largest gold companies on the planet. These include Newmont Mining Corp (NYSE:NEM), Goldcorp Inc. (USA) (NYSE:GG) and Barrick Gold Corp (USA) (NYSE:ABX) to name a few.
GDX is structured to put more of its assets towards the larger miners, too. So you are sure to have most of your money in established names across the industry. Right now, 53% of the fund’s assets are in its top 10 holdings — all of which are companies valued at $5 billion and higher.
If you’re looking to play established gold miners but want a little more diversification than you’d get by picking a few individual stocks, GDX is the way to go.
Best Gold ETFs and Precious Metal Hedges #4: VanEck Vectors Junior Gold Miners ETF (GDXJ)
A twist on the previous fund is the VanEck Vectors Junior Gold Miners ETF (NYSEARCA:GDXJ) that chases smaller gold miners and purposefully excludes the big ones. The firm’s mandate is to only hold stocks under $5 billion in market value, but right now it’s hard to find a single gold miner in its portfolio that is even north of $3 billion.
When you chase smaller gold miners, there is of course much higher risk involved. These companies simply don’t have deep enough pockets or large enough reserves in the ground to weather a sustained downturn in gold prices like their bigger peers.
However, it’s undeniable that when gold prices are rising the smaller companies tend to rise faster in kind. That’s because they are more agile and more dependent on pricing changes.
Expect more volatility here in GDXJ, but if the cards fall right you can also expect better performance.
Best Gold ETFs and Precious Metal Hedges #5: SPDR Gold Trust (GLD)
If you’re looking to play precious metals, one of the first ETFs to consider is the SPDR Gold Trust (ETF) (NYSEARCA:GLD) The fund is solely invested in gold bullion, and very closely mirrors physical gold prices as a result.
Before the advent of exchange traded funds, most investors looking to buy gold had to take delivery of physical coins that were difficult to store securely and were difficult to sell. After all, while many see gold as a store of value it’s not like you can go down to the local gas station and pay in bullion.
Thankfully, GLD takes all the complication out of the equation. This fund provides a liquid investment that is easy to trade. And best of all it requires no safety deposit boxes or home security system to protect your investment.
There are other physical gold ETFs out there, but with almost $35 billion in assets and a best-in-class expense ratio of just 0.40%or $4.00 for every $1,000 invested, this is stable and affordable.
Best Gold ETFs and Precious Metal Hedges #6: iShares Silver Trust (SLV)
For investors looking to diversify beyond simply gold and gold stocks, the iShares Silver Trust (ETF) (NYSEARCA:SLV) is a good alternative. Structured the same way as SPDR Gold Trust, this ETF provides direct exposure to physical silver prices by holding bullion and nothing else in its portfolio.
Silver is more affordable than gold, trading for under $20 an ounce currently vs. roughly $1,300 an ounce for gold. But that creates an even bigger logistical challenge if you plan to invest a sizeable amount of money in silver. Where the heck would you store 50 or 100 pounds of silver bars and coins where they will be safe?
SLV provides the answer with a reasonable expense ratio of 0.50% or $5 annually on every $1,000 invested.
Best Gold ETFs and Precious Metal Hedges #7: iShares MSCI Global Silver Miners ETF (SLVP)
If you don’t want a direct play on silver and prefer to play the miners that extract the precious metal, the iShares MSCI Global Silver Miners ETF (NYSEARCA:SLVP) is similar to the gold miner ETFs mentioned previously. The core difference, of course, is that the investments in its portfolio primarily mine silver.
The challenge here, however, is that many corporations that mine silver don’t do so exclusively. They frequently also mine gold or even base metals like copper and zinc. After all, if you have the equipment and the access, why not extract as much as you can?
Changes in the underlying dynamics of mining stocks or fluctuations in other metal prices matter to SLVP. And as a result, the silver miners ETF does not faithfully track silver prices. However, it’s a nice way to get some exposure to silver in a diversified way.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not hold a position in any of the aforementioned securities.
