China At G8: Five Ways to Play Gold

Following a volatile ride, the coming week promises to be an interesting one for gold investors.

Leaders from the Group of Eight (G8) industrial nations and major developing nations including China will meet in Italy from July 8 to 10. The wide-ranging agenda includes discussion on state of the world economy and financial regulation.

China has requested discussion on the position of the U. S. dollar as the world's global reserve currency and expressed interest in using the International Monetary Fund’s Special Drawing Rights as a super-sovereign currency. Developed member nations are however downplaying this issue.

Separately, the U. S. Treasury will hold four auctions next week to sell $73 billion of notes, bonds and inflation-protected securities as President Obama pushes the nation’s marketable debt to a massive $6.45 trillion.

Given China’s standing as the largest holder of U. S. Treasury debt, currency as well as gold traders will be keenly watching developments from the Group of Eight meeting. If recent market action serves as any guide, gold will likely rise first before paring gains.

Here are five ways to play gold depending on your risk tolerance and investment time horizon. While gold bullion is preferred by conservative investors, aggressive traders try to swing for the fences with leveraged and short ETNs.

Bullion ETFs

ETFs that hold gold bullion like SPDR Gold Shares (GLD) and iShares COMEX Gold Trust (IAU) allow your investments to track the spot price of gold without worrying about theft of and insurance for the metal.

Futures ETNs

ETFs like PowerShares DB Gold Fund (DGL) allow you to own gold futures instead of bullion.

Such ETFs automatically rollover futures contracts and save you the trouble.

Mining Mutual Funds and ETFs

Mutual funds and ETFs that invest in gold mining companies offer you the convenience of investing in a diversified basket of such companies.

Ownership of gold mining shares often offers more upside potential with higher downside risk than ownership of bullion. Fidelity Select Gold (FSAGX), First Eagle Gold I (FEGIX), and USAA Precious Metals & Minerals (USAGX) are examples of some mutual funds that invest in gold. Market Vectors Gold Miners (GDX) and PowerShares Global Gold & Precious Metals (PSAU) are ETFs that invest in gold mining companies.

Leveraged Mutual Funds, ETFs and ETNs

Aggressive investors have a wide range of investment choices. Mutual funds like ProFunds Precious Metals UltraSector (PMPSX), ETFs like ProShares Ultra Gold (UGL) and ETNs like DB Gold Double Long (DGP) offer leveraged exposure to gold. Such leveraged investments are usually not suitable for buy-and-hold investors.

Short Mutual Funds, ETFs and ETNs

Mutual funds like Short Precious Metals ProFunds (SPPSX), ETFs like ProShares UltraShort Gold (GLL) and ETNs like DB Gold Short (DGZ) and DB Gold Double Short (DZZ) provide opportunities to profit from a decline in the price of gold.

Disclosure: I own shares in FSAGX and USAGX. I do not have positions in any of the other securities discussed.

Comments

[whidbey:]

Interesting, almost as if you think Gold has a place in all portfolios? The problem is how much protection can one afford? I suspect gold will not be a money maker, but just insurance, store of value.

The noise at G8 is just that - thumb in Obama's eye. In that crowd the man has no friends, but also no one that wants to run a reserve currency which is a job, regardless of internal policy. Bad US debt policy makes running a reserve currency more difficult, of course. But Obama does not know about such things, he will push for time, forbearance and accommodation. None of which will do anything for the global recession. This is a tea party if they can find some tea.

Jul 06 11:24 AM

[goldrealmny:]

This guy is just another shill for the financial companies. Absolutely DO NOT use ETFs and other paper derivatve products imo. They are subject to potential DEFAULT. Just buy physical bullion only. Its the ultimate insurance and wealth protection. For leverage, buy the gold miners. Stick with good balance sheets, good mgmt, cash flow, and production growth in the pipeline. The seniors are good, but more value and upside in the mid tier/"small seniors" as they can GROW without acquisitions. The juniors have the most long term upside, but also very volatile. Be prepared to be right and sit tight on core positions and average down into them.

Precious metals are the only sure thing in the medium to longer term imo. (that and inflation/US dollar losing purchasing power!)

There is no need to worry about "storing" gold. You can fit a million dollars into a small shoebox. That can easily be HIDDEN. Use your imagination and maybe some carpentry skills. I also am a proponent of buying lots of silver bullion as the ratio of gold to silver is far too cheap for silver, especially knowing where gold is going in the coming years.

Jul 06 05:24 PM