Investing in Precious Metal Index Trackers

May 4, 2007 | By | 3 Replies More

There are two ways to invest in index trackers – Mutual Funds and ETFs.

What is an index tracker?

An index reflects the value of the stocks of the companies featured in the index.

The price of shares in an index fund will vary in direct proportion to the value of the stocks contained in the index.

In other words the price of a share in an index fund directly tracks the index.

At the present time there are over three hundred and fifty indexes worldwide and still increasing.

They cover a large number of market sectors from major indexes such as the Dow, S&P 500, Hang Seng (Hong Kong), Nikkei (Japan) FTSE and FTSE250 (LSE) to more obscure sectors like the Dow Jones Precious Metal Index (*DJGSP), the World Uranium Eur Index (*URAXP), the World Uranium USD Index (*URAXD) and Luxor Gold Bullion Secs (GBS:LSE).

Think of a market sector and it is more than likely that there will be a tracker fund associated with it.

The S & P 500 index is considered to be the benchmark for US equity performance and is the oldest ETF tracker, known as the Spider or SPDR (Standard &Poors Depository Receipts) ticker symbol Amex:SPY.

It reflects the performance of all 500 companies in the S&P 500.

The Advantages of an ETF tracker

Unlike a Mutual Fund, ETFs are traded in the same way as any other stocks, that is to say that a brokerage account is needed, buying and selling can take place at any time during the exchanges opening hours, shorting, leverage, options, day trading, etc. are available and of course standard brokers commission is payable.

Because a tracker fund reflects the value of the shares of the companies featured in the index and change proportionately, no expensive salaried analysts are required so management fees are low, and should not exceed 0.4% annually.

Because a tracker ETF represents a basket of stocks, the risk is spread across the constituents of the index, so that picking a stock from a sector that you feel bullish about is not necessary, and avoids the chance of making that one bad pick from an otherwise profitable group of companies.

Depending on the jurisdiction, ETFs are likely to be more tax efficient than Mutual Funds as they have lower distributions.

Investing in gold, silver or platinum group metal (PGM ETFs are about to be launched in London and Zurich) sectors and their miners via ETFs, (and not forgetting uranium and nuclear power) is a convenient way to gain entry into these commodities that we believe still have substantial upside despite the expectation in many quarters of a substantial correction taking place in stock markets generally in the not too distant future.

Three more indexes in our sectors to look at:

  • Amex Gold Bugs Index (HUI),
  • CBOE Gold Index (GOX)
  • Philadelphia’s Gold and Silver Index (XAU)

Note that uraunium futures start trading on NYMEX this coming Monday May 7th. Another reason to be bullish about the metal.

Do the homework and good luck.

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Category: Investment Vehicles

Comments (3)

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  1. don’t seen to be able to find current price on ruthenium, being in the pool industry the price of salt chlorinator cell plates are going thru the roof as they are coated with ruthenium. Thanks, Bob

  2. PMI says:

    Hi Bob

    Thanks for your interesting query and info on a use for Ruthenium.

    The market quotes are extremely wide. On Kitco.com there is a quote of $550-650, go to the home page and enter Ruthenium in the site search box.

    Interesting observation is that there are more signs of fresh industrial buying but trade selling is keeping market in balance.

    Be careful if you do a google search on the price as some of the sites have not been updated for months.

    My thoughts are that the best way to play this market is to find a miner that is producing the metal, it will always be as a by product of other PGM activity which is itself usually mined along with nickel and often other base metals.

    This is cutting edge research but in the main PGMs and to a large extent gold and silver tend to mirror each other, when one goes up so do the others and visa versa.

    You could think about a precious metal ETF to gain some very limited exposure to the metal.

    Somewhere in the world there will be a company that refines,stocks,recycles etc Ruthenium amongst its activities – if you find it please let me know.

    Interesting scenario, sorry if I haven’t been more helpful but if I have time to dig deeper and find anything interesting I will let you know.
    Regards
    J. Lloyd

  3. Thank you a bunnch for sharing this with all of us you really recognize what you are talking
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