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The Gold Stock Strategist analyzes leading junior gold producers and major gold mining companies.

Comments are welcomed!

Friday, March 28, 2008

Alternative Gold-related Investments

Greetings!

Junior gold miners--even those who have proved up considerable resources and are entering production--seem just too "risky" for many investors. I don't agree. My take is that since the emerging juniors are going from no production and negative cash flow to production leading to positive cash flow, they are hedged against a falling price of gold. Moreover, the juniors run under the radar because risk averse investors like me want to see earnings or cash flow before risking their capital in a company.

That said, junior gold miners are not the only way to invest in gold. I personally have about 1% of my portfolio in the gold bullion ETF with a symbol GLD. Of course, you can also own physical gold in the form of bars, coins, ingots, wire, and shot. About 1% of my portfolio is in physical gold bars and collectible coins.

The following are alternative investments to junior gold miners for investors interested in greater diversity in their gold holdings.

Mutual Funds
There are 21 families of gold related mutual funds with about 50 separate gold mutual funds
See: http://www.eaglewing.com/fundlist.html

Physical Gold ETF
State Street's streetTRACKS Gold Shares (NYSE: GLD)
iShares Comex Gold Trust (AMEX: IAU)

GLD is the most popular and liquid gold ETFs, GLD is also the oldest and the biggest of these funds. It lets investors participate in the gold bullion market without having to physically hold the metal, Each share representing one-tenth of an ounce of gold. Launched at the beginning of 2004, GLD has ~$19 billion in assets. Expense ratio is 0.40%.

IAU was launched in Jan. 2005, one year after GLD. IAU has more than $1 billion in assets 0.40% expense ratio.

Gold Miners ETF
Van Eck's Market Vectors Gold Miners ETF (AMEX: GDX)

GDX tracks the performance of the Amex Gold Miners Index, which is made up of 38 stocks. Started in May 2006 with ~$2 billion in assets. The fund yields around 1.4%. Its expense ratio is 0.55%. Canada makes up 60% of assets. South Africa accounts for about 20%, while the U.S. is 16%. Large-cap companies account for about 70% of the fund, while medium caps make up 28%, and small caps are slightly less than 10%.

TOP 10 HOLDINGS

COMPANY (Symbol) % Assets
AGNICO EAGLE MINES (AEM) 4.87
ANGLOGOLD ASHANTI LT (AU) 4.58
BARRICK GOLD CP (ABX) 16.1
BUENAVENTURA MINING CO. (N/A) 4.74
GOLD FIELDS LTD ADS (GFI) 4.36
GOLDCORP INC COM NPV (GG) 10.28
HARMONY GOLD MNG A (HMY) 3.96
KINROSS GOLD CORP COM NPV (KGC) 5.61
NEWMONT MIN CP HLDG (NEM) 9.62
YAMANA GOLD INC COM (AUY) 5.14

Gold Futures ETF
PowerShares DB Gold Fund (AMEX: DGL)

DGL began January 2007. The fund is designed to track the Deutsche Bank Liquid Commodity Index-Optimum Yield Gold Excess Return, which is composed of futures contracts on gold. $84+ million in assets. This fund invests in gold futures, collateralizes futures contracts primarily with short-term Treasuries. The fund's Treasury investments generate interest income. DGL's expense ratio is 0.50%.

5 comments:

Dan Tyrant said...

Excellent -- cheers for the list!

A few more I've come across: there's also DGP, the DB 2x leveraged gold ETN... ETNs are debt agreements though and, as such, one must worry about counterparty risk. I haven't seen any leveraged gold ETFs trading on American exchanges.

Fortunately, Horizon Betapro Gold Bull Plus (HBU) is an ETF offering the same 2x leverage. It trades on the TSX, which is a plus to me but YMMV.

iShares also has XGD.TO, the S&P/TSX Canadian Global Gold ETF and Horizon Betapro has a 2x leveraged version... i think it's HGU.TO. Should yield roughly 2% for every 1% appreciation in the TSX Cdn Gold index, but this index has disappointed this past year in comparison with the HUI. 2x leverage makes that less of an issue of course.

Finally there's the Central Fund of Canada(CEF on TSX, also on AMEX), in which you buy shares of a private vault of gold and silver.

On the non-ETF front, I know Everbank in the States offers gold CDs... they don't pay interest, but your principal is protected, and you gain from gold's appreciation... not bad eh?

goldstockstrategist said...

Great additions, Dan! Thanks for sharing this information.

Dan Tyrant said...

My pleasure... Lots of good info here and happy to pitch in!

BTW, here's a chart of HGU.TO vs. GDX vs iShares XGD.TO over the past 6 months. The HGU fared best, not surprisingly... http://img394.imageshack.us/img394/8146/firefoxscreensnapz002if4.jpg

mela said...
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mela said...
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