Silver and gold ETFs give investors access to the price performance of precious metals without needing to own physical bullion directly. Before investing, however, make sure you understand their differences and similarities so you can make an informed decision.
Silver can experience sharp price swings due to industrial demand, while gold has less fluctuation. Your best silver and gold ETF choice will depend on your investment goals, risk tolerance and time horizon.
iShares Silver Trust
The iShares Silver Trust (SLV) is an exchange traded fund (ETF) which invests directly in physical silver. Owning coins or bullion can provide an emotionally fulfilling way of investing, though its physical nature increases risks such as theft, illiquidity and storage fees.
SLV was designed to track the price of silver, and has historically had a close correlation. This close correlation makes SLV an effective means of diversifying portfolios without incurring risk or cost associated with holding physical silver.
iShares Silver Trust may seem to serve as an indicator of public demand for silver, but this may not always be accurate. Individual contributors (AP’s) have discretion over how much silver they contribute or remove from the Trust, with contributions or withdrawals having little correlation to actual public demand for silver. Upon liquidation, however, its trustee will sell off this precious metal in order to cover expenses and liabilities.
Global X Silver Miners ETF
Silver ETFs provide investors with an efficient means to invest in this precious metal without incurring the additional risks and costs associated with physical holdings. Trading like stocks throughout the day, these ETFs allow investors to buy or sell at fraction of dealer markups, spreads or storage fees associated with physical silver investments.
The Global X Silver Miners ETF provides exposure to silver mining companies that could outshone silver prices over time as production grows. More than 25% of its holdings are allocated to Wheaton Precious Metals, an organization which generates income through stream sales of precious metals.
Some silver ETFs use derivatives to replicate price movements of silver, creating counterparty risk if entities behind those instruments do not fulfill their obligations. Furthermore, some use leveraged and inverse strategies to exaggerate daily gains or losses which could lead to exaggerated performance relative to silver indices they track.
Market Vectors Gold Miners ETF
Gold ETFs such as SPDR Gold Shares (GLD) provide exposure to the price of gold, but often have high expense ratios. An alternative may be GDX – an ETF holding stocks from gold mining companies and royalty/streaming firms which provides lower-cost exposure.
GDX’s top holdings include Newmont Mining Corporation and Barrick Gold; however, ordinary investors also gain exposure to smaller miners that might expand production faster. As an excellent alternative to owning physical gold, GDX provides investors with access to its tax advantages in tax-advantaged accounts such as an IRA or 401(k).
Gold has long been seen as a safe haven in times of economic or stock market instability, especially as interest rates increase and investors seek to diversify their portfolios with gold as an asset class.
Market Vectors Silver Miners ETF
Silver Exchange Traded Funds provide investors with exposure to the market without incurring the costs and storage risks associated with owning physical silver. These funds track a basket of silver mining companies and help investors reduce investment risk by spreading it out over several dozen companies.
Silver mining stocks are susceptible to price changes caused by economic conditions, industrial demand and currency movements, which may fluctuate based on economic indicators like economic health or currency movements. Furthermore, supply and demand factors, including mining capacity constraints can impact these investments as well.
Investors should be mindful that silver ETFs may not reflect the price of physical silver as closely due to tracking errors and derivatives used, plus most do not generate income in the form of dividends or interest payments. They should carefully consider these factors before selecting an ETF to invest in; minimum investment amount required: $100 with principal value guaranteed by JPMorgan Chase & Co.
