Best Ways To Invest In Gold Now - Metal Or Miners ETFs?

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Includes: GDX, GDXJ, GLD, IAU
by: Zacks Funds

Gold appears to be one of the hottest trades this year. The precious metal has gained almost 16% this year-making it the best start to the year since 1980.

The rush to gold and other safe havens is a direct result of concerns about the global economy, including China slowdown, oil price plunge and earnings recession in the US. Growing worries that central banks may be running out of ammunition are also aiding gold's ascent.

Further, negative interest rates in Japan and some European countries are also boosting gold prices. Gold critics often argue that it is an unproductive asset since it pays nothing to holders and that argument does make some sense when interest rates are high but in the current ultra-low/negative interest rate environment, there is almost no opportunity cost of holding the metal.

Then there are supply factors too. According to a report from the World Gold Council, Gold production declined during Q4 last year - its first quarterly drop since 2008 and they expect this trend to continue as mining firms have cut investments after years of losses. And demand is China and India has been rising. While Indians have been buying jewelry, Chinese have increased their purchases of gold coins and bullion as the country's currency and stocks continue to weaken.

Physically Backed Gold ETFs

Physically backed gold ETFs - SPDR Gold Trust (NYSEARCA:GLD) and iShares Gold Trust (NYSEARCA:IAU) provide a convenient and cost-effective access to physical gold.

ETF Name Ticker AUM Expense Ratio YTD Return
SPDR Gold Trust GLD $28.3 bil 0.40% 16.6%
iShares Gold Trust IAU $7.2 bil 0.25% 16.8%
Click to enlarge

While IAU has a lower fee, GLD's excellent trading volumes make its trading very cheap. So, IAU is more suitable for buy and hold investors while GLD is better for shorter-term traders.

Gold Miners ETFs

Gold miners are leveraged plays on the metal. Miners' profits rise even with a small increase in the price of the metal. Market Vectors Gold Miners ETFs (NYSEARCA:GDX) and Market Vectors Junior Gold Miners ETF (NYSEARCA:GDXJ) are the two most popular ETFs in the space.

These ETFs-which are high risk/high reward plays--have been outstanding performers this year. However, in addition to their volatility, investors should also remember these ETFs have a lot of international exposure and associated currency risks.

ETF Name Ticker AUM Expense Ratio YTD Return
Market Vectors Gold Miners ETF GDX $5.71 bil 0.53% 37.8%
Market Vectors Junior Gold Miners ETF GDXJ $1.6 bil 0.55% 32.9%
Click to enlarge

To learn more please watch the short video below:

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