The precious metals have been shining brightly again this year. With the Federal Reserve looking to slash rates in one of the strongest bull markets in recent memory, questions linger as to what the next big move will be for markets. Will there be a big retracement or correction year as risks mount and geopolitical tensions soar? It’s hard to say. Either way, I think it’s a good time to revisit one’s gold and silver exposure.
And, of course, cryptocurrencies may make sense to help beef up returns, even if it means a choppier ride and much more in the way of downside risks. Either way, I think the case for diversification into alternative, non-productive assets (remember that Warren Buffett emphasized that gold and Bitcoin don’t produce anything over time) is a wise one, even if the price of admission into such assets is a bit steep.
Indeed, buying physical bullion entails paying a premium to the spot price. And when you’re selling, you could be offloading at a slight discount to spot. Not to mention the fees you’ll need to pay for safe and secure storage or the risks of stashing it in a safe in one’s residence. In any case, I don’t view physical bullion as a cost-effective way to bet on gold. Rather, the ETF scene has many cheaper options, some of which may have a bit extra to offer in the way of upside.
And, of course, let’s not forget about silver, which has been in a bull market of its own of late, keeping up with gold every step of the way this year. At the time of this writing, silver is actually up more than gold on a year-to-date basis.
In any case, consider the following pair of simple, cheap options if you’re in the market to get in on the gold and silver run:
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Sprott Physical Gold and Silver Trust
First up, we have something that’s about as simple as it gets. The Sprott Physical Gold and Silver Trust (TSX: CEF), as the ticker symbol suggests, is a closed-ended fund that holds gold and silver bullion. Indeed, for those looking to take risk and volatility off the table, the CEF is a great way to go.
Though the mix of the CEF may not be right for everyone (around 66% gold and 33% silver, though the exposure may differ at any given time), I do see the fund as a cost-effective solution with its modest 0.49% management expense ratio. Sure, it’d be nice to customize your gold and silver allocation (some may prefer 50/50 or 25/75). For those who want something quick, simple, and effective, though, the CEF is a great pick, especially at a discount! It’s one of the best ways to get the best of both worlds.
iShares S&P/TSX Global Gold Index ETF
For the gold bugs out there, the iShares S&P/TSX Global Gold Index ETF (TSX: XGD) is a great way to go. The one-stop-shop ETF invests in the biggest and brightest gold miners out there. And while the ETF is more volatile than a physical bullion ETF, I think the potential for amplified upside makes the XGD a stellar pick, especially for market newcomers. Indeed, the miners are leveraged by nature, and as gold continues to rally, the uplifting effect on the broad basket of miners could dwarf the gains of the bullion ETFs.
For new investors, it really comes down to if one wants less volatility or more upside. Personally, I think there’s more value in the miners. As such, the GDX seems like a better bet than the CEF. Though I wouldn’t be afraid to own both together! That way, you’ll get physical gold and silver as well as the premier gold miners.
