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Spreading Exposure Key to Gold, Silver ETFs

NEW YORK (TheStreet) - Precious metals have fallen into focus as commodity prices head higher and political unrest sweeps North Africa and the Middle East.

In particular, silver and gold have taken center stage as demand for defensive assets drives both resources to breathtakingly high levels. Though staggering at the start of this week, they have shown no signs of slowing.

Thanks to exchange traded funds, precious metals have become as easily accessible to retail investors as stocks and bonds. Investors can gain access to a physical stockpile of these shiny metals through funds such as the iShares Gold Trust (IAU) and the iShares Silver Trust (SLV).

In response to the upward action from gold and silver, both IAU and SLV have become attractive investment destinations. Though enticing, it is important to avoid blindly diving into either of these funds.

Rather, by appropriately spreading exposure across these shiny metal ETF options, investors can both capture the upside potential of gold and silver while getting protection from the risk of downside.

The closely monitored gold-silver ratio has tumbled in recent months and is now sitting around 40. This decline indicates that, while gold is flirting with brand new all time highs, it has been a noticeable laggard compared to silver. These two metals boast different qualities which can help to explain this divergence.

Sweeping strength across the commodities spectrum, combined with the fact that economic healing has taken hold in many regions of the globe has helped push silver into the spotlight. Although this metal is often turned to in times of uncertainty, silver is also used extensively by a number of industries. Therefore, this metal is also influenced by the action taking place across the broader market.

Gold, on the other hand, tends to see its strongest performance when fear takes over and demand for risk wanes. The yellow metal has far fewer industrial uses than silver and therefore moves independently of the global marketplace.

The conditions we have seen so far this year have benefitted silver. However, this does not mean that piling into SLV is the strongest or surest strategy going forward.

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