ETF Talk: It’s All So Very Precious

At least the gains were precious while they lasted.

The precious metals sector seemed to have been a safe haven from the downward trend in stock prices until recently. Exchange-traded funds (ETFs) that invested in precious metals such as gold and silver now are taking financial hits. Such ETFs absorbed losses of 2.5% or worse on Tuesday, April 1, as if the markets were playing an April Fools’ Day joke on precious metals investors. But the losses incurred by those investors were real. The biggest losers yesterday among the precious metals ETFs were PowerShares DB Precious Metals (DBP), down 4.18%, and PowerShares DB Gold (DGL), which dropped 4.13%.

Precious metals lost a bit of their luster yesterday when the stock market rose strongly and enticed investors to chase the opportunity for profits in equities. The current volatile market conditions make it risky to place any big bets on commodities, so I am not recommending them right now. However, they are interesting to track — especially from the safety of the sidelines.

Gold soared to a high of $1,030.80 an ounce on March 17, before suffering a pullback. Its price has bounced around since then but lately is trending downward. Gold traded at around $935 on March 28, then dipped to $886.01 on April 1. With gold sliding, it is difficult to predict when the traditional hedge against inflation might recover.

Silver ran up less than gold and therefore should not fall quite as much on a percentage basis. Silver closed at $17.03 an ounce on April 1 to mark a fall of 11 cents on the day. Certain prognosticators are forecasting a rise in the prices of gold and silver. However, I follow trends and so far I am seeing the prices of both heading in the wrong direction to be a buyer of either.

Above is a chart of seven ETFs that track precious metals. Three are from the PowerShares ETF fund family, two from iShares and one from streetTRACKS. Market Vectors also provides a precious metal ETF — Market Vectors Gold Miners ETF (GDX). GDX differs from the other six ETFs above because its index tracks the performance of publicly traded companies involved in mining for precious metals, while the indexes for the other ETFs track the actual performance of gold and silver.

Despite the dips taken by gold and silver in recent days, silver has shined with its year-to-date performance. Two top-performing silver ETFs are iShares Silver Trust (SLV) and PowerShares DB Silver Fund (DBS). Both still are nicely positive so far this year, despite the recent price drop in silver prices.

Even though I am not recommending any of these ETFs at this time, I do think it’s important to familiarize yourself with how precious metals are performing during this turbulent market. Precious metals may regain their waning appeal in the not too distant future.

For now, I’ll let the speculators take the risks.