This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Hedge Your Hedge in Precious Metals

Stocks in this article: GLTR UGL GLD GLL ZSL AGQ

Editor's note: This piece originally ran earlier today on our newest Premium service, ETF Profits . Click here for a 14-day trial to this exciting product!

Tensions around the world continue to mount. The move toward oil and commodities grows as equity bulls begin to hesitate. Those looking to hedge against both geopolitical fears and inflation are using precious metals. Gold and silver have become the playmates of fear, whereas palladium stands a bit more on its own and platinum's performance is tied more to the economy. The ETFS Physical Precious Metals Basket Shares (GLTR) wraps these four metals into a single basket. Fortunately if you're looking for a hedge against equities, platinum and palladium make up only about 13% of the ETF. Normally, I would consider simply using gold and silver only, but the resilience of equities and weakness of the U.S. dollar make the inclusion of platinum and palladium a very attractive part of this hedge or portfolio inclusion.

With the unknowns of war and peace come volatility in equities and precious metals alike. Even though we've seen some volatility in precious metals, the more pervasive notion has been the trend. So rather than just buying GLTR outright, I want to examine a long/short strategy that could serve to mitigate some of the volatility in gold and silver, or as a hedge that could mitigate a trend, depending on a trader's outlook.

Leveraged ETFs draw their strength from a trending market, while a volatile market has a negative impact on their longer-term performance. One way to combat either situation is by pairing GLTR with some leveraged ETFs of the underlying holdings. In order to combat volatility within gold or silver (or both), a trader could approach a trade in the following manner:

Let's suppose a trader intended to buy $1,000 worth of GLTR; the underlying makeup would be roughly $454 worth of gold, $412 in silver, $81 in platinum and $53 in palladium. How could one maintain similar exposures, but perform better if gold and silver were volatile in their price patterns? Good question. One possible solution is to increase the purchase amount of GLTR to $2,000, thus doubling the dollar exposure to all the metals. Then the trader could short $227 of the ProShares Ultra Gold (UGL) to offset the additional $454 of gold exposure in the increased purchase of GLTR, and short $206 of the ProShares Ultra Silver (AGQ) to offset the additional silver exposure.

This model would generally outperform a straight purchase of just the GLTR shares if we experience volatility and price oscillation in gold, silver or both. The weightings of platinum and palladium are both increased, so that should be taken into account, as they would now make up about 26.8% of the holding, but that is also a level I find more responsible and desirable.

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,778.15 +421.28 2.43%
S&P 500 2,061.23 +48.34 2.40%
NASDAQ 4,748.3960 +104.0840 2.24%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs