Since last Nov. 9 low interest rates, rising oil and gas prices and excitement over President Trump's pro-business policies have fueled the upswing in equities.
But now, interest rates are climbing, energy prices are gyrating, and Wall Street is growing dubious over presidential promises that increasingly resemble empty braggadocio. Add rising inflation and frothy equity valuations to the equation and the message is clear: you need precious metals in your portfolio as a hedge.
Below, we examine three exchange-traded funds (ETFs) to leverage the coming boom in gold and silver. But first, let's review the dangers that make these classic safe havens more compelling than ever.
Now in its eighth year, this bull market is starting to show its age, as reflected by worsening volatility and excessive valuations. First-quarter earnings for the S&P 500 have been stronger than expected but insufficient to justify high share prices. The forward, 12-month price-to-earnings ratio for the S&P 500 is 17.9, compared to a 10-year average of 14.4. After smashing the 20,000 barrier in January, the Dow Jones Industrial Average passed 21,000 this month.
Unsustainable valuations aren't just restricted to America. In Britain, the FTSE 100 has been racking up new records and the MSCI World Index has reached an all-time high. Red flags abound, notably the wildly exuberant Initial Public Offering in March of Internet company Snap, shares of which skyrocketed 44% on their first day of trading. Snap reached a lofty valuation of nearly $30 billion, which is absurd for a company yet to make any money.
But you needn't panic. Today's investment conditions add up to a flashing yellow light, not an exit sign. Let's look at our three precious metals ETFs, which offer both safety and growth.
With net assets of $33.2 billion, The SPDR Gold Shares ETF (GLD) is the largest gold ETF backed by physical holdings of bullion. Year to date, GLD is up 6.73% compared to 6.04% for the S&P 500. Expense ratio: 0.40%.
GLDW seeks to track the daily performance of a long position in physical gold and a long position in the U.S. dollar against a basket of non-U.S. currencies.
GLDW gains when gold prices rise and the value of the dollar increases. Historical trends show that a stronger dollar weighs on gold prices. However, if both gold and the dollar rise in tandem, as analysts expect to happen this year, GLDW's investors win both ways. GLDW is up 2.72% since inception. Expense ratio: 0.50%.
As a hedge but also to profit from the coming bonanza in silver, buy shares in the iShares Silver Trust ETF (SLV) . Year to date, iShares Silver Trust is up 9%. Net assets: $5.78 billion. Expense ratio: 0.50%.
Buying any combination of these ETFs provides a simple, cost-effective way to invest in gold and silver. ETFs are transparent, liquid and trade like stocks, whereas acquiring and storing physical gold and silver can be an expensive hassle.
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