Leveraged Silver Investing

iStockphoto: williv

 Using Money, Options, and Time in Your Favor

First to understand leveraged silver investing, it’s vital to know what leverage is, how it works, and the different types of leverage an investor can use. Leverage as Princton defines, “money as a way to amplify potential gains.” Now most of this leverage will be borrowed money, but there are other types of levearage such as futures contracts, options, and time. We’ll talk about each of these below.

Borrowed Money

Generally speaking for individual investors, borrowed money for investments in silver will come in the form of margin. Margins are set up as loans against stocks traded on major exchanges. The interest rate on margin accounts will range from 8% to 11% depending on your personal income, investment experience, and amount of leverage you use. Words of warning, a stock can move both ways, margin won’t. While you will benefit from a stock on margin moving up, you will still pay margin for a stock moving against you.

Second, if you could find a silver mining stock that would pay a high enough dividend yield to pay the margin payments, then technically you’d own the stock with borrowed money. But again, leverage is great for stocks moving in your favor, but can burn when going against you. It takes an incredible amount of financial knowledge and experience to profit from leverage.

Options

Options are an amazing form of leverage. Options work as leverage because of the difference between the price of the underlying asset and the cost of the option to buy the underlying asset. For example, say you wanted to invest in Silver Wheaton Corp. (SLW). In this example you have $1,000 to invest. You can either buy shares around 62 shares, or you can buy options. For Silver Wheaton, you could buy options for  7,200 shares using the same $1,000. Be sure to read all the risks before using options. Options work the same way as debt, it’s incredible when moving with you, and burns when it turns against you.

Futures

Futures are similar to both options and margin. As Investopedia explains, “In the futures market, leverage refers to having control over large cash amounts of commodities with comparatively small levels of capital.” That’s similar to the options because of the amount of silver you could control, but also similar to a margin because you might eventually have to pay the total sum of the futures contract you hold.

Time-Value Leverage

Time-Value leverage remains unique to the silver investing market because of the collection premium most coins collect over the years. In this example, the investor holds 20 coins from a later date, say 2004. The difference in markup between the current year and the year this investor holds is: $1.00 or more. Since, this investor remains interested in silver as an inflation hedge, she doesn’t have a preference about the year of her holdings. She would then sell the older coins, and buy the current year. Now, because of the time-value collectors have placed on the later year, with the extra premium she can now buy a whole new silver eagle.

This collector premuim works to the silver investor’s favor because he or she can continue to build her silver portfolio buy selling older coins and buying the current year. It’s true compounding for the silver investor.

Tags: leveraged silver investing, silver futures, silver options

The Top Ten Silver Investments of 2009

It was a great year for silver investors, though not as great as many had hoped or expected. There are so many factors pointing to a much higher value for silver than was realized in 2009, but look on the bright side: so long as governments, central banks, and short-selling speculators artificially keep the price of silver down, they’re effectively subsidizing your silver purchases. The only time we should be excited about higher silver prices is when we’re ready to sell, and I, for one, am still in the accumulation stage.

That said, I can’t exactly be mad when the spot price of silver goes up. It feels good to be right, and no matter what vehicle you chose for silver investing in 2009—silver stocks, ETFs, or actual bullion—you couldn’t lose. Here is a list of the ten best silver-related investments for the year, from Christmas 2008 through Christmas 2009.

1. Silver Bullion
Although silver bullion did not see the price appreciation of the more heavily leveraged silver stocks, it was and will always be the best silver investment you can make. That’s because paper gains in the stock market can be wiped out in a flash, but so long as you hold real, physical silver, your investment is always protected. When considering the “best” investment, you have to look at risk as well as reward.

Silver hit a low in January of ’09 at $10.51 an ounce—this was the optimal time to buy. Its high point came in early December at $19.18—an 82.4% gain—but in my opinion, this was no time to sell. Personally, I think I’m being modest when I call for a per-ounce price of $50 or more within the next 2-3 years.

Now, you could have made more money buying most silver stocks in 2009, but if you’re trading stocks, the question is: what do you do with your profits? Do you roll them back into more stock investments? Do you just sit on top of the cash? Under the former, you run the risk of having things go against you and wiping out your profits. Under the latter, you’re guaranteed to lose purchasing power through the continuing devaluation of the dollar. My advice: go ahead and trade stocks if you have a knack for it, but when you take profits, buy silver bullion!

2. Hecla Mining Company (Ticker: HL)
Although Hecla ranked as the fourth worst-managed gold and silver company in an earlier article, there’s no contesting the stock’s stellar performance in 2009. Over the past fifty-two weeks, through Christmas, shares of HL are up 161.69%. If you were a really savvy trader who bought at the stock’s low ($1.17 on March 10) and sold at its high ($7.47 on December 2), you could have racked up a 538.46% gain—that could have bought a lot of silver.

As for the stock’s 2010 forecast, I don’t expect it to so greatly outperform its peers. The firm is about to post a second straight annual loss in 2009, and though it may have been drastically undervalued at $1.17, it would have to fall a lot lower than its current $6.49 before it would look like a good buy to me.

3. Endeavour Silver Corporation (Ticker: EXK)
From Christmas to Christmas, Endeavour Silver Corporation was the best-performing silver stock of all, racking up gains of 263.21%. From its low at $0.94 on New Year’s Eve of 2008, to its high of $4.16 on December 18 of ’09, Endeavour Silver skyrocketed by 342.55%.

Endeavour’s outlook for 2010 is much more promising that that of Hecla Mining, based in large part on its far superior management. In addition to its stellar stock performance, Endeavour has also grown sales by a compound rate of 45% over the past three years. That sort of thing points to sustainable growth, and thus EXK is one of my favorite silver stocks for 2010 and beyond.

4. Silver Wheaton Corporation (Ticker: SLW)
Silver Wheaton is a unique silver stock in that it doesn’t mine silver. Instead, the firm obtains it through long-term purchase contracts. This way, shares of SLW are a pretty good proxy to actual silver bullion—probably a better “pure play” on silver than a silver ETF, for example. And yet, Silver Wheaton greatly outperformed bullion in ’09, gaining 152.04% year-over-year and 257.58% from its low ($4.88 on January 15) to its high ($17.45 on December 2).

Since Silver Wheaton tries to peg itself to the spot price of silver, actual silver should be preferable to its shares in most cases. However, if you have an IRA or even a regular stock-market account with idle money in it, Silver Wheaton could be an easier way to invest those funds in silver than the generally preferable alternatives. The stock’s outlook for 2009 is just as bullish as that of silver itself.

5. Coeur d’Alene Mines Corporation (Ticker: CDE)
Coeur d’Alene Mines explores for and produces silver (and gold) in the Silver Valley mine of Idaho and the Rochester mine in Nevada, as well as two mines in Chile and Argentina. The firm is also developing mines in Bolivia and Alaska.

Year-over-year, Coeur d’Alene’s shares more than doubled, and from its low point ($5.50 on March 1) to its high ($24.86 on October 21) there’s a spread of 352%. Coeur d’Alene Mines has come off of its highs by quite a bit recently, closing on Christmas Eve at $18.58. It looks to be a solid investment for 2010.

6. Mines Management, Inc. (Ticker: MGN)
Mines Management, Inc. was rated the #1 best-managed precious-metal company, but it ranks just #6 among the best-performing silver stocks. Year-over-year, the stock is up 91.09% through Christmas, and 239.89% from its low ($1.03 on January 23) to its high ($3.47 on December 2). On Christmas Eve, it closed at $3.08 per share.

7. Buenaventura Mining Company Inc. (Ticker: BVN)
Buenaventura Mining Company, aka Compania de Minas Buenaventura (as it’s known in Peru), saw its shares range from $14 (January 15) to $42.69 (December 1)—a span of 204.93%. Year-over-year, though, shares are “only” up 82.5%.

8. Pan American Silver Corporation (Ticker: PAAS)
Pan American Silver is a mining company operating primarily in Mexico and Peru. It also sells the byproducts from its silver mining operations, including zinc, lead, copper, and gold. From its low point of $12.61 to its high of $27.31, shares of PAAS gained 116.57%.

9. Silver Standard Resources Inc. (Ticker: SSRI)
Silver Standard Resources ranks as the worst-managed silver stock on our list—or in general—but it still managed to post the ninth-best performance, year-over-year. For the fifty-two weeks ending on Christmas, shares of SSRI are up 50.8%. If you bought SSRI at the optimal time (at $11.65 on March 10) and sold it at its high ($25.60 on June 1), you would have realized a 119.74% gain in less than three months. That’s not bad, for sure, but while every other stock had its 52-week high in October or later (all but one were in December), SSRI peaked way too early.

10. MAG Silver Corporation (Ticker: MVG)
MAG Silver was ranked the sixth-worst-managed gold and silver company, and one of the reasons is that its performance lagged. Year-over-year, shares of MVG gained only 34.66%—that’s far less than silver itself. Why take the risk of buying stocks when you can hold the real stuff? Only trade in pursuit of short-term profits, which can then be converted to silver. For longer-term investing, stocks are only a good idea if there are extenuating circumstances (i.e., your employer matches contributions to your 401k). Whenever possible, though, it’s always best to hold actual silver bullion.

Tags: silver bullion, silver investing, silver investments

Top Ten Stock Picks for Metal Investors in 2008

With the declining dollar bouncing the price of gold and silver to historic heights, the year 2008 will most likely see the same trend continue. Many analysts see gold at $1,000 an ounce.

So, for the investors looking for some hot stock picks, follow a general rule for mining stocks, “for the most part, senior gold producer stocks have been the beneficiaries of gold’s move. Usually, majors begin to move then mid-tier, juniors and then finally explorer gold stocks rise,” notes Toby Hansen, who writes for SeekingAlpha.

1. Lihir Gold Ltd. (LIHR)
2. Barrick Gold (ABX)
3. Gold Corp (GG)
4. Newmont Mining (NEM)
5. Anglo Gold (AU)
6. Silver Wheaton (SLW)
7. Pan American Silver (PAAS)
8. Silver Standard Resources (SSRI)
9. Hecla Mining (HL)
10. Coeur d’Alene Mines (CDE)

Tags: silver stocks, stock-picks, top ten

Investing in Silver Using Stock Options: The Basics

Stock options are a form of leverage for advanced investors to boost returns of his or her stock portfolio. In the most basic definition, an option is a contract, the option to buy or sell a certain stock at a predetermined price.

Options are leverage; using leverage either increases investment returns or burns investor’s portfolios. Like options, guns are a form of leverage, if you’re hitting your target great–but you can also blow your foot off.

There are many reasons an investor may use stock options, hedging, lock-in gains, or as speculation. By hedging an investor reduces the risk of losing money during a price decline. Likewise, an investor would use stock options to reduce the risk of losing gains from selling options. And these advanced investors may wish to speculate on a stock price movement, therefore might use stock options to play the market.

Vocabulary of an Options Trader

We’ve already covered some of the vocabulary of options trading, but now we’ll dive in deeper to explain the difference between call and put options, then explain a few simple strategies option traders use to boost gains.

A call option is the right to buy shares at a certain price. Conversely, a put option is the right to sell shares at a certain price. Simply meaning, a call option means you expect the price of shares to rise. Whereas, buying a put option means you expect the price of shares to decline.

The strike price is know as the price which shares may be purchased or sold. This means, if you bought an option with a strike price of $50, you could buy or sell the shares of the option at $50.

But why would anyone want the option to buy or sell at $50? Well what if you had the option to buy the shares at $50, then the price rose to $51, you would’ve made $1 per share. Similarly, what if you had the option to sell the shares at $50 and the price fell to $49, then you could’ve sold the shares at $50 then bought the shares again at$49–a profit of $1 per share.

In both put and call options the purchaser has the option to exercise her purchase, while the option seller has the obligation to respond to the buyers request.

So, How Does This Help My Silver Portfolio?

Well, you know that the FOMC (Federal Open Market Committee) is getting to lower the target interest rate, thus causing a further decline of the U.S. Dollar and increases the rise of inflation. So, you buy a call option now, and when the FOMC lowers rates you get to profit from the price increase of silver mining companies.

Or the opposite situation where you think the FOMC is getting ready to increase the target rate, so you buy put options and profit from the fall in prices of silver mining companies.

Puts, Calls, and Conclusions

Carefully consider using options to invest because of the leveraged nature of options. Options may provide opportunities to increase your portfolio, but options can also burn through your portfolio at break-neck speed.

Also consulting your tax and investment advisers will prove to be a prudent move. Options have different tax effects your tax situation. Before investing in options, it is important to thoroughly understand the potential risks and benefits–options could either help or hurt your portfolio.

Tags: investing-in-silver, stock options

Recycling Your Old Jewelry: Green Profits

There has been a lot of buzz lately about the economic and environmental advantages of recycling jewelry that you no longer enjoy or which is too badly damaged to be repaired. So, we thought it might be useful to discuss the realities of recycling.

Recycling, in the strict context of this article, involves melting down an old piece of jewelry and then reusing the gold (silver, platinum) to make something new, thereby eliminating the need to mine more (gold) for the new piece. It is the exception rather than the norm for a jeweler or designer to actually melt scrap him or herself.

In most instances, jewelry to be melted is accumulated until there is enough quantity to send to a refiner – a company that is in the business of ‘refining’ (melting and purifying) precious metals in relatively large lots. ‘Scrap’ from many different sources are processed together, so you never get back ‘your’ gold.

The refiner reduces the ’scrap’ to the pure metal and either pays the jeweler the market value based on the estimated weight of pure (gold, etc.) in the batch, less a refining fee, or returns an equivalent amount of gold (etc.).

In a less strict sense, ‘recycling’ would include selling your unwanted jewelry for cash on eBay, selling it or ‘trading it in’ to a jewelry store or designer for cash or in exchange for something new…similar to trading in your old car when buying a new one. (Giving it as a gift could also ‘qualify’ if it was in lieu of buying a new piece).

Financial Considerations

Before you do anything with that old jewelry, there are a number of things you should determine: ” What do I have?”

• Are those ‘white’ stones diamonds…or zircons, or glass?; are the blue stones sapphires, etc.?
• If the stones are real (precious or semi-precious), what type, size, quantity, and quality are they?
• Is the jewelry made of silver, or gold, or platinum?; the Marking and Stamping Act of 1906 requires quality marks (purity stamps), and trademarks (the registered mark of the maker), as a ‘guarantee’ of authenticity for virtually all gold and silver jewelry made and sold in the United States
• If it’s gold, what karat is it?
• Is it repairable and how much will that cost?

10Kt (10 parts out of 24, usually marked ‘10K’), 14Kt (marked ‘585′ or ‘14K’), or 18Kt (marked ‘750′ or ‘18K’), and some designers use even higher karat gold; (pure gold is 24K, and is almost never used for jewelry because of its softness, except in some oriental jewelry made for the Asian market as a way of ‘carrying one’s wealth’).

If it’s silver, it should be marked ‘925′ or ’sterling’ (92.5% silver) or ‘Fine’ (pure); if it’s platinum, it will usually be marked ‘900′ or ‘950′ (depending on the percentage of platinum vs. alloy).

Was it designed/made by a famous maker?; in some instances, this can mean a world of difference in market value (e.g. David Webb, Cartier, Boucheron, Suzanne Belperron, etc.); the makers name and/or trademark is usually stamped on the jewelry, and can be researched online or in any good library, as well as in the jewelry sales records of major auction houses.

Your Best Sources for Answers to Most of These Questions Are

Your original bill of sale, which should tell you the metal its made of, what types of stones the piece contains, and the total weight of each type; and

[Try] a well-established fine jeweler, preferably in a small-to-medium sized town or city – reputation being everything in the jewelry business, you are less likely to be taken advantage of in a small community than might be the case in a large metropolitan area where anonymity is still possible.

If you are in a big city and don’t have a jewelry store that you regularly deal with, ask friends for recommendations or contact the Better Business Bureau. Also, try to speak directly with the owner. He or she may be more likely than an employee to value developing a new customer beyond a quick, single transaction.

What is my jewelry worth?

Once you have determined what you have, you should try to find out what it’s actually worth ‘at retail’. Assuming your jewelry is in sale-able condition, take a look on eBay before making any decision. Check out the auction results for items similar to yours so that you’ll have an idea of how much people are actually paying. At the very least, you’ll be in a better position to negotiate if you do decide to ‘recycle’ with a designer or jewelry store.

Once You’ve Decided to Recycle

As an individual, the only practical way to recycle (other than on eBay or similar), is to ’sell’ or ‘trade-in’ your old jewelry for cash or for a new item of jewelry, with a designer or jewelry store. However, it’s important for you to remember that these people are in business to make a profit.

When you Buy, you are paying not only based on the market value of the precious metal and stones, but also for design and for labor, which includes such things as casting the metal, setting the stones (which, for small stones, can be as or more expensive than the stones themselves), cleaning, soldering, polishing, and so on – all, plus a markup for overhead and profit for the maker AND for the retailer.

When you Sell to a designer or jewelry store, on the other hand, you’re only likely to get ’scrap’ value unless your piece is in really good condition and still in fashion, or you are ‘trading up’ for something much more expensive. In a nutshell, this means that the price of the stones and/or gold (silver, platinum) will need to have gone up dramatically from where they were when you bought, in order to recoup anything close to what you spent originally. You will avoid feeling insulted and disappointed if your expectations are realistic.

Oh, and if you’re only getting ’scrap’ value, don’t include the stones if they are not damaged, especially if they’re small. (I can probably buy equivalent stones from my gem dealers for a fraction of what you paid for them as part of your jewelry, so why should I pay you more)? They can probably be removed from the ’scrap’ quite easily and you can incorporate them into a new design now or in the future.

The bottom line is, if you have a piece of jewelry that you no longer wear, it certainly makes financial sense to either sell it, trade it in, or repair it.

Environmental Considerations

This is a no-brainer: though certainly simplistic, the more damaged or simply unused jewelry that we bring out of the drawer or safe deposit box and recycle, by whatever method, the fewer the new pieces that will be made and/or the less mining that will be necessary to meet the demands of the market.

Not only does mining require major energy input (not that jewelry manufacturing and precious metal refining don’t also consume energy, though dramatically less on a per unit basis), but mining for precious metals is among the dirtiest and most polluting types of mining. The impact we have individually is, of course, minuscule.

Cumulatively, however, it can be quite significant and since it also makes financial sense, there is precious (no pun intended) little excuse not to do it. The day is approaching, at frightening speed, when recycling everything imaginable will not be an option…but an imperative!

Tags: silver jewelry

The Investor Allure of Exchange Traded Funds (ETFs)

It’s no secret: ETFs are hot. And with Wall Street pushing ETFs as the newest investment vehicle for all, it’s hard not to ignore the idea of using an ETF. It’s the low costs, liquidity, lower taxes, transparency, and specialization offered by ETFs that is making investors switch to ETFs.

Basically these ETFs are a liquid, low cost mutual fund, holding a pool of stocks within a specialized sector of the economy. For an example of such a specialized fund, think about an ETF of silver mining companies. This fund would be a holding–based on a certain percentage–of each major metal mining company. However, when compared to a classic mutual fund, the cost advantages of ETFs are huge.

Unlike ETFs, the costs run in the billions for mutual funds to hire analysis, accountants, and marketing firms. And a few of those billions could be money in your account. So, an ETF is an alluring alternative to a mutual fund. It’s the strong point of an ETF: lower fees and costs mean more money flowing to investors.

Also unlike mutual funds, ETFs can be more liquid. Many investors see mutual funds as a place to park money for a period of time, thus theses mutual funds aren’t nearly traded as ETFs. Because ETFs are bought and sold just like stocks, ETFs create trading opportunities that mutual funds just don’t offer. It’s this liquidity that draws many investors to ETFs over the traditional mutual fund.

What investor doesn’t like lower taxes? Exactly. These lower taxes provided by ETFs are also a big attraction for investors. Because ETFs don’t have trigger-happy managers running the ETF, the investor doesn’t have additional taxes to worry about. So far, taxes for ETFs are capital gains tax if you sell and some funds–but not all–have dividends.

It’s also the transparency drawing many investors into these funds because at any time you can see exactly what the fund is comprised of. The fund will usually have a set percentage in each investment. This kind of transparency is hardly found in either mutual funds or on Wall Street—that’s why investors are running to ETFs: complete transparency.

ETFs provide investors specialized segment of an industry. In this case well stick to precious metals. The iShare Silver ETF (SLV) holds a certain amount of bullion and prices closely follow the price of silver. On the other hand, streetTRACKS Gold Shares (GLD) is a fund of gold mining companies. Still, both funds are investments into the precious metals market.

On a side note, investors interested in leveraging returns will be glad to know that ETFs can be bought on margin, and options are available on ETFs. As cliché as this saying is, it is important to remember leverage is a double-edge sword: cutting out huge returns, as well as, cutting out the ignorant investors.

While ETFs are pushed by Wall Street and as other investors brag about her double digit returns, prudent investors remember: some investments–just aren’t made for everyone. So the dive into ETFs will depend on your investing personality and investment goals. So be sure to follow some sound advice: Eight Rules for Exchange Traded Funds.

Some investors will want the ease of investing in a specialized sector without having to sit down and pick the companies within that specialized sector. While other investors will want to research for hours and pick the best company within that sector, it depends on the investor weather ETFs are the right investment.

Tags: etf, silver ETF, silver investing

Silver Mutual Funds Offer Another Option for Investors

There are numerous ways to invest in precious metals these days. Bullion and rare coins have always been investment options, and they’re still good ones. Gold and silver certificates and privately minted coins are some other choices. And there are also mutual funds that can offer you exposure to the precious-metals sector.

There are about thirty mutual funds which invest in both gold and silver. But as you will see, the investment styles and strategies of these funds vary greatly. Some invest primarily in mining stocks, while others hold bullion or coins. Still others offer a balanced approach. And finally, there are the exchange-traded index funds tied directly to the bullion price of gold and silver. One thing is for sure—it’s never been easier to invest in precious metals.

Two of the Best Precious-Metals Funds

Two of the best precious-metals mutual funds are Vanguard Precious Metals and Mining (ticker: VGPMX) and Permanent Portfolio (PRPFX). Both of these funds received five-star ratings from Morningstar, and yet they are quite different.

The Vanguard Fund is heavily stock-based mutual fund. As of July 31, 2007, 97% of its $4 billion in assets were invested in equities, with its largest holdings Lonmin (LMI), Impala Platinum (IMPUY), Anglo Platinum (AGPPY), and Aber Diamond Corporation (ABZ). All four of these stocks are foreign and can only be purchased by U.S. investors through ADRs—buying the fund is much easier.

As of July 31, 2007, Vanguard Precious Metals and Mining had a one-year annualized return of 22.29%. Its three-year return was even better, at 39.88%. And its five-year return was 34.01%. An investment of $10,000 five years ago would be worth $43,220 today.

Another amazing feature about the Vanguard Fund is its incredible Sharpe Ratio of 1.41 (five-year return over risk). In fact, based on the fund’s three-year, five-year, and ten-year data, Morningstar assigned it a return designation of “high,” and a risk designation of “low.”

Permanent Portfolio (PRPFX) didn’t fare quite as well. Its three-year, five-year, and ten-year returns are designated as “high,” but it’s risk is also “high” or “above average.” What’s more, its returns haven’t been as high as Vanguard’s—just 8.1%, 11.75%, and 13.06% for one, three, and five years, respectively.

But Permanent stands out when you look at its worst returns. In its history as a fund, the worst three-month period it has ever experienced is -5.58%. By comparison, Vanguard shareholders would have suffered a -29.8% three-month period if they held the fund long enough.

Remember, the Vanguard Fund is 97% stocks. Permanent Portfolio, by stark contrast, is much more well balanced. As of July 31, 2007, it was 23% in cash, 32% in stocks, 21% in bonds, and 24% in “other”—which, as you might guess, means mostly precious metals. In fact, its four largest holdings are U.S. Golden Eagles, Gold Canadian Maple Leafs, COMEX Gold, and COMEX Silver.

It’s easy enough to look at these two funds and say Vanguard is superior, but it really depends on what you want as an investor. Do you want a well-managed mining-company fund, or do you want a mutual fund that gives you real exposure to gold and silver? If the answer is the latter, than Permanent Portfolio is your best bet.

One Not-So-Good Fund

Of the thirty gold and silver funds, only two received a five-star rating. Three others received four stars, and all the rest but one were either given three stars or weren’t rated. There was just one two-star fund: RiverSource Precious Metals & Mining.

Like the Vanguard Fund, RiverSource is predominantly stock-based. As of July 31, it had 96% of its $120 million invested in equities, more than half of which were foreign securities. Unfortunately, its selections haven’t panned out as well as Vanguard’s, with only a 7.06% year-to-date return.

Another negative aspect of RiverSource is its ultra-high expense ratio of 2.15%. By comparison, Vanguard has an expense ratio of just 0.35% and Permanent Portfolio’s is just 1.11%. Both of the five-star funds are no-load, whereas RiverSource has a 1% back-end load. All of these fees and expenses can really take a bite out of your returns, especially when the fund’s performance isn’t all that hot to begin with!

Exchange-Traded Funds

Finally, there are exchange-traded funds (ETFs) that allow investors a more direct access-point to gold and silver. For gold, there is streetTRACKS Gold (ticker: GLD), and for silver, there is iShares Silver Trust (SLV). Both of these funds are tied directly to the price of their corresponding precious metal, and invest in nothing other than gold and silver, respectively.

For example, streetTRACKS Gold is priced so that one share of the fund is equal to 1/10 an ounce of gold. The iShares Silver Trust is priced so that one share equals ten ounces of silver. However, these ratios don’t always hold up—GLD recently traded for $66.57 a share while gold was $670 an ounce; and SLV traded at $127.65 while silver was priced at $12.79. Nevertheless, these ETFs do give investors an easy way to own gold or silver, at least on paper.

It’s As Easy as Point and Click

So what is the best way to invest in precious metals? It’s really up to you—your preferences and investment goals. The only thing you must be sure of is if your strategy matches your investment objectives. For example, if you want real exposure to gold and silver, it’s much better to purchase Permanent Portfolio than the Vanguard Fund—but even better yet to buy GLD and/or SLV.

But if maximum exposure isn’t your goal, the Vanguard Fund could be a great investment. The best news is there are dozens of options which simply didn’t exist ten or twenty years ago. Now, with nothing more than a few hundred dollars and Internet access, anyone can hedge with and profit from precious metals.

Tags: Permanent Portfolio, silver investing, silver mutual funds, Vanguard Precious Metals and Mining