Precious metals choices feature funds, collectibles and bullion to give investors a variety of ways to ride the upward price trends of the shiny assets.
Gold and silver prices have jumped in the past year, and further gains appear ahead, said Rich Checkan, president and chief operating officer of Rockville, Maryland-based Asset Strategies International. The challenge for investors is to buy precious metals assets that are best for their specific goals.
Exchange-traded funds (ETFs) are easy to buy and sell for investors who value liquidity. However, only certain funds allow investors to take direct distribution of precious metals such as gold or silver, which have outperformed equities handily in the past year.
Precious Metals Choices Feature Funds
The above chart for the past 12 months shows SPDR Gold Shares (NYSE:GLD) and iShares Silver Trust (NYSE:SLV) share prices more than quintupling the gains of the Dow Jones Industrial Average, the S&P 500 and NASDAQ. Gold and silver languished in a precious metals bear market between 2011 and 2018 before jumping in the past year. During the last 12 months, SLV soared 27.18 percent and GLD leaped 25.21 percent, while the S&P 500 rose 3.49 percent, the Dow Jones Industrial Average climbed 3.31 percent gain and the technology-laden NASDAQ gained 2.04 percent.
A drawback of precious metals funds is that many investors do not understand the mechanics of how they operate, Checkan said. ETFs only track the precious metals prices well if the fund manager is successful in predicting short-term market movements, he added.
Fund managers constantly need to choose between going long or short in the market to match investor demands with the buying constraints of physical precious metals, Checkan said.
Precious Metals Choices Include Collectibles
Another asset class for investors to consider is precious metals collectibles. The collectibles “eventually” will benefit from the “bull market in precious metals,” but an influx of material coming in from Europe is keeping a lid on appreciation due to oversupply, Checkan said.
“There is some interest in high-end numismatics from extremely wealthy investors establishing portfolios, but the market has been fairly flat for some time,” Checkan continued. “There is value out there for investors looking to build a rare coin portfolio, but the horizon is longer to see appreciation, and the cost is higher, in terms of premium, than bullion bars and coins.”
A third kind of precious metals asset class, aside from funds and collectibles, is bullion, which can take the form of bars or non-rare coins. Plus, the premiums charged by sellers of bullion have been slashed during the past five years, Checkan said.
“Wholesalers and retailers have been cutting premiums to earn a small market share of buyers while precious metals traded in a narrow range, fighting headwinds of a strong dollar and strong equities markets, amidst multi-decade lows in sentiment,” Checkan said.
Precious Metals Choices Encompass Perth Mint Bullion
The best way to participate in bullion right now, whether investors are buying gold for “wealth insurance” or silver for its “profit potential,” is through the Perth Mint Depository Distributor Online (PMDDO) program, Checkan said. “Perth Mint Certificates 2.0” offer an “amazing vehicle for investors” that is superior to ETFs and blockchain gold products, Checkan said.
The minimum order is just $50 for gold, silver and platinum products, with just a 1 percent commission owed by investors that would be shared between the Perth Mint and Asset Strategies, Checkan said. In addition, there are no ongoing storage fees and the commission charge falls as low as 0.2 percent for especially large orders, he added.
Rich Checkan, president and chief operating officer, Asset Strategies International
Safeguards for investors under the Perth Mint Depository program are that the precious metals are protected by the mint and accessible online 24/7 to the investors, Checkan said. In addition, there is no leasing of the precious metals to third parties, no use of the precious metals to back derivatives and the investment is fully insured at 100 percent of the full market value at the expense of the Perth Mint, he added.
Precious Metals Choices Extend to Platinum
The Perth Mint Depository program is the best kept secret in gold, silver and platinum that often is unknown to investors, Checkan said.
Gold has zoomed 24.25 percent in the past year, while silver has rocketed 27.05 percent and platinum has jumped 18.22 percent, according to Kitco Metals Inc., a precious metals retailer. But gold has slipped 0.73 percent in the past 30 days, while silver has soared 6.29 percent and platinum has leaped 8.16 percent.
“A lot of charts have really opened up if you’re eager to ride the gold wave and rake in a little profit,” said New York-based money manager Hilary Kramer, whose new 2-Day Trader service has notched 10 consecutive profitable trades with an average return of 15 percent since its launch. “Both Newmont Goldcorp (NYSE:NEM) and Barrick Gold (NYSE:GOLD) are currently trying to hold technical support after correcting 10-15 percent in the last five days. They’re going to need that support to continue their recent rally. Otherwise, I wouldn’t be surprised to see them both drop another 10-20 percent before they really get back to work.”
Columnist Paul Dykewicz interviews money manager Hilary Kramer.
Bullion traded via funds like Sprott Physical Gold & Silver (CEF) have held up better, but they look vulnerable to at least 5-15 percent downside before offering a firm entry point, said Kramer, who also heads the Value Authority, GameChangers, Turbo Trader, High Octane Trader and Inner Circle advisory services. Kramer added that her cautious view of silver and gold right now doesn’t mean she is bearish on either or the companies that mine those precious metals.
“It is simply an acknowledgement of how far they’ve come since the gold bugs started their run in May,” Kramer said. “Even if GOLD, for example, pulls back another 20 percent, that’s only rewinding to levels that looked reasonable just a few months ago. Either way, you need more than firm conviction on your side to avoid catching a falling knife, even if it’s made of solid gold.”
The recent retreat in gold gives investors a gift by revealing just how high the gold group can go in the current news environment of a weakening dollar, possible inflation and a trade war, before running out of steam, said Kramer, who added gold needs to show it can punch through resistance prior to reclaiming its 2011 high. Otherwise, the floor can be a long way down, she said.
Inflation Risk Does Not Warrant Making Quick Precious Metals Choices
For investors seeking an inflation hedge, precious metals stocks do not pay much in the way of dividends, Kramer said. GOLD only pays $0.16 per share every year, which isn’t even a 1 percent yield, she added.
With the Fed forecasting inflation of about 2 percent in the next year, GOLD would need to drop 50 percent to keep up with that “mild deterioration in purchasing power,” Kramer said. Precious metals have become a hedge against collapse, but for generations, gold and silver played a much bigger role when the economy ramped up fast enough to erode purchasing power and cause inflation, Kramer added.
“With the Fed basically daring prices to accelerate, odds are good that inflation goes up from here.” Kramer said.
Gold led the way forward for the past year until the past month when silver took off and the precious yellow metal dipped. In the past three months, the iShares Silver Trust (NYSE:SLV) skyrocketed 20.48 percent, compared to 12.00 percent for SPDR Gold Shares (NYSE:GLD). In contrast, NASDAQ gained 4.15 percent, the S&P 500 climbed 3.43 percent and the Dow Jones Industrial Average added 3.04 percent in the same period.
Trade War Affects Appeal of Precious Metals Choices
“Any resolution to the trade war will probably constrain Beijing’s ability to keep the yuan artificially weak,” Kramer said. “A stronger Chinese currency means a weaker dollar, and again that’s good for gold.”
This is different from the argument that precious metals are the ultimate reservoir of value in dangerous times, Kramer said. Inflation often afflicts perfectly healthy economies that have a strong outlook, but exposure to gold and silver helps prevent the value of money from eroding, she added.
“In that scenario, I actually prefer mining stocks because once the metal has been dug out of the ground, it’s essentially dead and will rarely do more than match inflation in the long term, Kramer said. “VanEck Vectors Gold Miners ETF (NYSE:GDX) is the best place to start. What makes miners stand out is that their management teams are constantly exploring for new mineral resources, unlocking operational efficiencies and shuffling projects in search of the best possible fit for shareholders. Much of that value takes the form of dividends.”
Kramer said she would not buy mining companies that offer dividend yields below the inflation rate, which rules them all out right now. But on the right dip, it would be worth locking in those quarterly payments, she added.
In contrast, bullion doesn’t pay dividends, Kramer said. Investors can’t shave off a few grams from their gold bars every month to pay the bills, she added.
Retirees Should Weigh Precious Metals Choices
Bob Carlson, who heads the Retirement Watch advisory service, said retirees need more than income in their portfolios.
“They always need a growth component to protect their purchasing power from inflation over time,” Carlson told me. “These days they also need a hedge against geopolitical conflicts and uncertainty, including the trade conflicts between the U.S. and China, the Brexit situation in Europe and more. A position in gold meets these needs.”
The best way for most retirees to own gold is through an ETF that buys the metal, Carlson said. ETFs have low fees and are easy to buy and sell, he added.
“I recommend iShares Gold Trust (NYSE:IAU) because it usually has the lowest costs,” Carlson said. “Also, IAU isn’t widely owned by short-term traders such as hedge funds, so its share price isn’t likely to drift far from net asset value during periods of market volatility.”
Gold Mining Stocks Join the Precious Metals Choices
In addition, investors could earn some income and benefit from rising gold prices by owning shares of gold mining companies, Carlson said. However, the shares are far more volatile than the price of gold, Carlson cautioned.
“Mining company shares also introduce factors other than the price of gold to an investor’s portfolio,” Carlson said. “The other factors include a company’s debt level, management skill and labor issues. Also, many mining companies aren’t pure gold plays; they mine metals in addition to gold.”
Gold and silver offer safe-haven investments in times of crisis that have been reflected by rising prices of each precious metal in the past year. Key reasons for the climb, including negative interest rates in Europe, soaring government debt, trade wars, economic weakening and global conflicts rather than a specific economic disaster such as the Great Recession of December 2007 to June 2009, seem unlikely to end anytime soon.
Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Seeking Alpha, GuruFocus and other publications and websites. Paul is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is the editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Paul also is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. Follow Paul on Twitter @PaulDykewicz.
