The precious metals market plummeted on the positive vaccine news earlier this week. With an expected V-shaped recovery amplified by the effectiveness of the vaccine, investors shifted their focus from safe-haven assets to risky assets. Following this news, both gold and silver witnessed a sell-off.
However, even if the vaccine clears all the FDA tests for approval, widespread immunization is months away. Economic pain and high unemployment levels require government stimulus, which is long overdue. There are fading hopes for another fiscal stimulus package when the Fed is encouraging both inflation and stimulus.
The global economy continues to remain weak, short-term interest rates remain unchanged, and central banks are continuing with their loose monetary policy. The value of precious metals is inversely linked to the economy. Consequently, investors will soon turn to precious metals in protecting their investments, and hedge against inflation and economic uncertainty.
As ETFs provide a broad and diversified exposure at minimal operating costs, it could be a good idea to invest in the precious metals space through ETFs. The SPDR Gold Shares (GLD), VanEck Vectors Gold Miners ETF (GDX), iShares Silver Trust (SLV) and Global X Silver Miners ETF (SIL) are well positioned to soar with precious metals becoming more bullish.
SPDR Gold Shares (GLD)
GLD tracks the gold spot price using gold bars held in London vaults and seeks to reflect the performance of the price of gold bullion. The spot price for gold bullion is determined by market forces in the 24-hour global over-the-counter (OTC) market for gold. GLD is the first US traded gold ETF that invests directly in physical gold. The fund has $74.91 billion in AUM, with an expense ratio of 0.40%.
The product structure reduced the difficulties of buying, storing, and insuring physical gold bullion for investors. The Trust holds gold bars and from time to time, issues baskets in exchange for deposits of gold and distributes gold in connection with redemptions of baskets.
GLD closed yesterday’s trading session at $174.90, gaining more than 23% year-to-date. The fund has witnessed net inflows of $9.56 billion in the past six months and is up nearly 10% in the same period. The ETF is currently trading 10% below its all-time high of $194.45.
How does GLD stack up for the POWR Ratings?
B for Trade Grade
B for Buy & Hold Grade
B for Peer Grade
B for Overall POWR Rating.
It is ranked #2 out of 35 ETFs in the Precious Metals ETFs group.
VanEck Vectors Gold Miners ETF (GDX)
GDX is one of the most popular funds in the global mining segment that provides exposure to publicly traded companies worldwide involved primarily in gold mining. The investment seeks to offer investment results that correspond to the NYSE Arca Gold Miners Index, a multi-cap market-weighted index of global gold-mining firms.
GDX has $16.15 billion in AUM and an expense ratio of 0.52%. The ETF has an MSCI ESG Fund Rating of BBB based on a score of 5.39 out of 10. The fund pays an annual dividend of $0.19 that translates into a yield of 0.51%.
The fund currently holds 53 companies and has major international exposure, with only 16.5% of its assets in the United States. 45.7% of GDX’s investments are in Canada-based firms, while 14.6% are exposed to companies in Australia. The top 3 holdings of the fund are Newmont Corporation (NEM), Barrick Gold Corporation (GOLD) and Franco-Nevada Corporation (FNV), with the weights of 13%, 11.3%, and 6.3%, respectively.
GDX has gained 28% so far this year to close yesterday’s trading session at $37.49. The ETF witnessed a net inflow of $526.8 million in the past six months and is up nearly 10.8% in the same period. Moreover, the fund is currently trading 18.1% below its 52-week high of $45.78.
In our POWR Ratings, GDX has been accorded an “B” grade for Trade Grade. Within the Precious Metals ETFs group, it is ranked #15 out of 35 ETFs.
iShares Silver Trust (SLV)
SLV is a passively managed ETF that tracks the silver spot price using silver bullion held in London. The fund gives investors direct exposure to silver by physically holding the metal in vaults. SLV is the most liquid fund in its peer group and is also the largest fund in its segment, suggesting stability for buy-and-hold strategies. The fund has $14.85 billion in AUM, with an expense ratio of 0.50%.
This ETF uses a physically-backed methodology, an idea that was popularized by ETFs, due to investors growing tired of the complexities of futures contracts and the dangers that are associated with them. By using this strategy, the fund eliminates the issues of contango and backwardation, as well as giving investors more realistic pricing of the metal it holds.
SLV has gained 35.2% so far this year to close yesterday’s trading session at $22.55. The ETF witnessed a net inflow of $2.86 billion in the past six months and is up nearly 56.4% in the same period. Moreover, the fund is currently trading 17.7% below its 52-week high of $27.39.
In our POWR Ratings system, SLV has been accorded an “B” grade for Trade Grade. Within the Precious Metals ETFs group, it is ranked #16 out of 35 ETFs.
Global X Silver Miners ETF (SIL)
SIL is an ETF that provides investors an opportunity to achieve exposure to silver without holding the physical metal or encountering the nuances of a futures-based strategy. It aims to deliver investors access to a broad range of silver mining companies across the globe and provide investment results that correspond generally to the performance of the Solactive Global Silver Miners Total Return Index.
SIL has an MSCI ESG Fund Rating of BBB, based on a score of 4.74 out of 10. The fund has $1.02 billion in AUM and an expense ratio of 0.66%. The ETF pays an annual dividend of $0.55 that translates into a yield of 1.28%.
SIL is heavily exposed to Canadian-based companies with a 54% country weighting. This is followed by a 13% and 11% allocation to Russia and the United States, respectively. The top 3 holdings of the fund are Wheaton Precious Metals Corp (WPM), Polymetal International PLC and Pan American Silver Corp (PAAS), with 21.2%, 12.5%, and 11.4% weights, respectively.
SIL has gained 30.8% so far this year to close yesterday’s trading session at $43.41. The ETF witnessed a net inflow of $371.92 million in the past six months and is up nearly 36% in the same period. In our POWR Ratings system, SIL is ranked #20 out of 35 ETFs within the Precious Metals ETFs group.
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GLD shares were trading at $177.42 per share on Friday morning, up $1.46 (+0.83%). Year-to-date, GLD has gained 24.16%, versus a 12.23% rise in the benchmark S&P 500 index during the same period.
About the Author: Sidharath Gupta
Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...
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