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Investing Ideas Precious Metals: The Showdown Continues
Investing Ideas Precious Metals: The Showdown Continues 
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| Precious Metals: The Showdown Continues |
| Thursday, 10 January 2008 | ||||||||
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As many of you know, I’ve fought with how to play gold over the years. I’ve swung for the fences several times, only to hit nothing but air. Much to my chagrin, I am ever frustrated and humiliated. I now have a long-standing archenemy: the Philadelphia Gold and Silver Sector Index (XAU). This index includes such notables as Newmont Mining (NEM:NYSE) and Goldcorp (GG:NYSE), but turns out, following gold mining companies isn’t the same as following gold prices. The XAU is far more volatile than gold prices. If fact, playing options on the XAU, in my experience, has been like trying to corral flies. But now, gold prices are inching toward the $900/ounce mark, and I find my palms are getting itchy. What to do… Take a chance? Play it safe? Or try a different angle? In my world, two out of three ain’t bad, and if I can one-up the XAU by proxy, I’ll try it. Take a look at the following chart… Gold Daily Percent Change This is a comparison of gold and silver spot prices. Over the past six months, gold prices have climbed more than 27% and silver prices have climbed 17%. You can easily see that these precious metals have a fairly high correlation, but with two distinct times that have allowed gold prices to climb higher than silver prices. First, in late September through October last year, silver prices oscillated while gold prices trudged steadily higher. (Silver prices did catch up quickly in late October with a massive spike.) Then, when gold prices traded range-bound through the months of November and December, silver prices dropped significantly.
Since then, both precious metals have had upside breakouts, but silver’s performance has thus been below that of gold. In other words, gold’s recent surge breaking to new highs could pull silver prices to new highs, too. And the best way to play these two commodities is, thankfully, not the XAU, though I am bullish on some smaller silver mining companies in Latin America. I’m talking about the two precious metals ETFs that track the prices of gold and silver: the StreetTracks Gold Shares ETF (GLD:NYSE) and the iShares Silver Trust ETF (SLV:AMEX). I’ve talked about these ETFs before, and I’ve recommended them to readers; but now, you really need to listen: If your portfolio is heavily weighted in dollar-based assets, or invested wholly in the U.S. market, these two ETFs will help protect you from the falling value of the dollar. Hopefully, you don’t need to be convinced that the dollar has fallen sharply against every major currency over the past year. Gold and silver are natural hedges against these downward fluctuations. And the best part is that you can stay invested, ready for any potential rebound in the future. In the meantime, a position in either of these ETFs is not only a prudent move at this point, but you’d be seriously risking portfolio losses if you don’t diversify. Sara Source : Market Report This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
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