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Alternatives to Gold Mutual Funds: Gold ETF (Exchange Traded Funds)

Some interesting things are happening in the ETF world right now that will greatly increase investors options for investing in gold and gold stocks, and might ultimately make them a better choice than gold mutual funds depending on your investment need.

ETF’s are Exchange Traded Funds and they are essentially mutual funds that are traded on a stock exchange in the same way that regular stocks are. So, purchasing a share of an ETF means that you are buying into a grouping of multiple stocks that either (1) track an index (i.e. S&P 500), or (2) have been bundled as part of a specific strategy (i.e. small cap China, India and Brazil growth stocks, etc.). This can be good if you want a broader exposure to an industry or an index than the purchase a single gold stock allows. It also means that you can do certain things with ETF’s that can’t do with mutual funds, like selling short or buying options.

That’s a very, very basic description of ETF’s. If you aren’t an experienced ETF investor, then you should read this to get a more in depth explanation of what they are and do other additional research on your own before jumping in.

Now that we have a basic understanding of what ETF’s are, lets talk about how you can use them to get exposure to gold. If you’re looking to invest in gold stocks, you really have 3 options:

  1. Buy gold mining stocks
  2. Buy gold mutual funds
  3. Buy gold ETF’s

Options 2 and 3 are similar, but there are important developments happening right now that will give gold ETF investors greater flexibility than gold mutual fund investors. Before we get into those new developments, let’s talk about some differences between gold ETF’s and mutual funds.

Some gold ETF’s are more targeted to the gold industry specifically and are actually designed to track the gold pricing index. In general, mutual funds are a little more broad and may include a grouping of a number of different commodities rather than one specific commodity like gold: i.e. Vanguard Precious Metals and Mining (VGPMX), which tracks a number of different precious metals including gold.
In contrast, there are popular gold ETF’s available (streetTRACKS Gold Shares (GLD), iShares COMEX Gold Trust (IAU)) that are designed to increase or decrease in price in lock step with the price of gold in much the same way that an investment in actual gold bullion or coins would. So if you want that direct exposure to the price of gold in your investment portfolio, but would rather gain that exposure through your investment account than by purchasing gold jewelry, bullion or coins, this is a good solution.

Every investment option we’ve talked about thus far is for investors who believe that the price of gold will go up and want exposure to gold or gold stocks in order to profit from that rise in price. But what if you think that gold’s legendary run over the past few years is over and the price of gold is going to go down? Is there anything that investors can do to both (1) hedge against a drop in the price of gold, to protect gold investments in your portfolio, or (2) profit from a decrease in the price of gold? The answer is yes you can and it’s about to get a whole lot easier to do so with some new ETF developments that will be occurring soon.

Previously, the only option for an investor who wanted to profit from a decrease in the price of gold was to engage in a short sale of a gold stock or gold ETF. But short selling is slightly more complicated than the regular buying and selling of stocks, and requires an investor to open a margin account.

Enter ProShares, a company specializing in inverse ETF’s. ProShares inverse or “short” ETF’s increase in value when the sector they follow loses value, usually in direct or close to direct proportion. This allows investors to get the same effect of a short sale of an ETF (i.e. profiting from a decrease in sector or index value) through a normal purchase in their investment account.

ProShares has the following ETF’s awaiting approval by the SEC:

ProShares Short Gold
ProShares UltraShort Gold

Generally, ProShares UltraShort ETF’s increase in value 2 times for every 1 time the index they track decreases in value, whereas ProShares Short is usually designed to be on a 1 to 1 basis. Neither of these ETFs are available now, but you can check the status on the ProShares website.

ETF’s are another way for investors to gain exposure to gold and gold stocks. Short ETF’s allow investors to gain inverse exposure and profit on gold’s decline. None of these investment options should be taken lightly as commodities in general are very volatile and most investors will never have a need for the short positions that ProShares Short and UltraShort ETF’s offer. So do some serious research if you’re thinking about making gold and gold ETF’s a part of your portfolio. The Motley Fool and Morningstar are great resources. If, after doing so, you are still on board with gold ETFs, make sure to keep you portfolio diverse and don’t over commit to a single investment idea.

Gold Mining Stocks: What you Need to Know Before You Invest

Gold stocks have had an impressive run over the past year, and with gold hitting record high prices in earlier this month, you may be thinking about investing.  But just like any investment, you had better learn the basics or you risk getting burned.  Understanding a few key elements about gold stocks and the gold industry can protect you from excessive financial risk, and provide a safer path to market-beating profits.

Chocolate coins
Creative Commons License photo credit: cowbite

It’s important to remember that gold stocks are first and foremost, stocks.  So approach gold stocks as you would any other investment… by doing some research at the Motley Fool!  The Motley Fool is a fully independent investment resource that is a great place to begin your research on gold stocks. If you make your own investment decisions and you’re not familiar with “The Fool”, then you need to start taking advantage of their high quality and free investment advice for ALL of your investments.

The Fool provides 2 great things that can help increase your knowledge of gold stocks very quickly: (1) free articles written by Motley Fool analysts, and (2) free stock ratings from their Motley Fool CAPS investor community.

Let’s talk about #1 first and see how it can quickly boost your gold stock knowledge.  Motley Fool analysts provide smart, savvy and brutally honest commentary on specific investments and investing in general through free articles that are posted to the Motley Fool site.  By just doing a 30-second search for “Gold Stocks” on the Motley Fool site, we found the following great articles:

Got Gold? – A discussion of major and niche gold stocks and their prospects for the coming year.
You Are About To Make a Bad Investment – A case against investing in gold and gold stocks.
Dueling Fools: Gold – 2 of the Motley Fool’s best analysts (1 pro-gold, 1 anti-gold) square off on gold stocks and gold in general.

That’s some incredibly targeted information on gold stocks and it was obtained with little or no effort.  At the bottom of each of those articles are links to other relevant gold and gold stock articles, so just by reading a little and following the web of information at the Fool, you can dramatically increase your gold stock knowledge in just 30 minutes!  If it’s your hard-earned cash that’s at stake, then make the time and spend an extra half an hour learning about gold stocks before you jump in.

The 2nd outstanding resource on the Fool that can greatly increase your gold stock knowledge is Motley Fool CAPS.  The Fool is home to one of the largest communities of independent investors on the web, and CAPS is an online service that allows that community to interact and rate and tag stocks.  CAPS determines which participants are best at accurately rating stocks (based on market performance) and which stocks the community thinks will perform the best over time.  This information is totally free and available to everyone, so you can go to CAPS right now and find out what stocks are rated the highest within every industry and which CAPS participants are best at picking stocks. 

Here’s how you can put CAPS to work for you in your gold stocks research. This link will take you to the “Gold” page at Motley Fool CAPS.  The “Gold” page shows stocks that are relevant to the gold industry and the ratings for each stock as supplied by the CAPS community.  Here we see that the following gold stocks are rated the highest on CAPS:

  1. Rubicon Minerals Corp. (USA) (RBY)
  2. Central Sun Mining Inc. (SMC)
  3. Miramar Mining Corp (USA) (MNG)
  4. Western Goldfields (WGW)
  5. Yamana Gold, Inc. (USA) (AUY)

Each of the above gold stocks has its own page on CAPS that contains detailed financial information and metrics, links to relevant Fool and outside news articles, and CAPS community opinions.  This is a great way to begin to get more specific gold stock investment ideas and again, all of this information is completely free and unbiased and doesn’t even require you to provide an email address.  Many of the CAPS users also have blogs on CAPS where they talk about their investments, so if you find a gold stock you like, read the user posts (both positive and negative) to get a fuller picture of why other people like or dislike a stock.

Should gold stocks be part of your portfolio?  Maybe.  There are a lot of opinions out there, but as with any investment, you ultimately need to determine that for yourself.  The Motley Fool tools mentioned above are free and can help you to greatly increase your gold stock knowledge.  If you’re thinking about investing in gold stocks, take 15 minutes to explore the tools above.  You will probably end up spending more time than that once you have sampled the high quality information that is available.  Knowledge is critical to making money investing in any stock sector, and gold stocks are no exception.

Gold Prices Pushing Consumers to Sell their Gold

Since late 2007, many gold store owners have witnessed a strange phenomenon occurring in their stores.

Normal every day people have been digging through their old or unused gold collections and jewelry boxes and bringing in every kind of gold they can find.

Gold prices have been nearing $1,000 an ounce – a historic high – which has many consumers selling their old gold for a profit.

Some speculate that this “reverse gold rush” is also partly caused by the recent economic slowdown. As people are having a tougher time paying their bills, it only make sense for them to sell their old jewelry.

Recently a number of websites have popped up for selling gold online including and These sites let you collect and mail your jewelry to processors who weigh, appraise, and pay you cash for your gold, making the entire process easy for just about anyone.

A recent AP article quoted a shop owner in Chicago:

“It’s stuff that’s lying around the house, so they figure: Why not make money from it?” said co-owner Wayne Cohen. “The price of gold is so ridiculously high that they’d be stupid not to get rid of it.”

We’ll explore more reasons why the price of gold is at an all-time high in the coming weeks and also help you profit from this unique time in gold’s long history.

Helping you buy and sell gold, gold stocks, and bullion.