On Monday, gold futures hit nearly $1,500 per ounce. Investors remain concerned about inflation, especially in China, as well as potential sovereign debt defaults in Europe, such as in Ireland and Spain. Those events have driven up gold prices before, but now they are hitting new records.
More significantly, there are even worries about the U.S. debt. The latest bombshell: Standard & Poor’s has reduced the overall credit outlook. This could ultimately lead to the downgrade of the America’s AAA credit rating.
So it should be nosurprise that gold is rallying. The belief is that gold is a strong hedge against the devaluation of a currency.
To participate in the gold trade, there are many options for individual investors, like mutual funds and exchange-traded funds (ETFs). Let’s look at some of the standouts:
First Eagle Gold (SGGDX)
Even if a mutual fund has “gold” in its title, this does not mean it is a pure play. Often, the portfolio will have broad-based mining companies, such as in silver, copper and aluminum.
But in the case of the First Eagle Gold (MUTF: SGGDX) fund, the focus is mostly on gold. It even has substantial holdings of bullion (which currently represents 13.66% of the portfolio).
First Eagle has a bias for the larger operators. Top holdings include Goldcorp (NYSE: GG), which has a market cap of $43 billion, and AngloGold Ashanti (NYSE: AU), which has a value of about $19 billion.
Because of its focus on value, the fund tends to do better when gold is in the bear phase.
GAMCO Gold AAA (GOLDX)
Caesar Bryan has a good feel for the gold market. Since the mid 1990s, he has been the manager of the GAMCO Gold AAA (MUTF: GOLDX) fund. So he understands how to deal with tough markets. Consider that over the past 15 years, the GAMCO fund has posted an annual average return of 9.31%
A key part of Bryan’s strategy is to look at companies with large proven reserves. The fact is that many miners have deposits that are getting thin. To boost production, there is usually no choice but to engage in acquisitions. This can certainly be dilutive for shareholders, which can lower returns.
Van Eck Intl Investors Gold C (IIGCX)
Joe Foster, who is the manager of the Van Eck Intl Investors Gold C (MUTF: IIGCX) fund, is actually a geologist. This is a big value-add since analysis requires an understanding of the production capacity of mines. This can be especially helpful when investing in early-stage gold companies.
Foster’s track record has been rock solid. Over the past ten years, the fund has produced average annual returns of 28.90%. Although, the expense ratio is hefty, coming to 1.95%.
SPDR Gold Shares (GLD)
For some gold investors, they want the sense of security of owning bullion. Although, this is expensive. You need a vault as well as insurance.
But there is an alternative – that is, a physically-back ETF. Essentially, this is a fund that buys gold bars and allows investors to get a piece of the ownership.
One of the top ETFs in the sector is the SPDR Gold Shares (NYSE: GLD), which has $57.2 billion in assets. The fund stores its gold in London, which is part of a custody agreement with HSBC Bank.
The expense ratio is also fairly low, coming to 0.40%.
Market Vectors Gold Miners ETF (GDX)
In many cases, an ETF is based on a basket of stocks. This provides diversification as well as good exposure to a market.
And yes, there are ETFs that focus on goldcompanies, such as the Market Vectors Gold Miners ETF (NYSE: GDX). The fund is based on the NYSE Arca Gold Miners Index (the minimum market cap is $100 million).
The top holdings include Barrick Gold (NYSE: ABX), GoldCorp (NYSE: GG), Newmont Mining(NYSE: NEM) and Kinross Gold (NYSE: KGC).