The only thing worse than a 500-point decline of the Dow Jones Industrial Average is another triple-digit drop during the same week. Knowing when the decline will stop or how far it will go is unknown. When it comes to portfolio protection, a "golden parachute" in the form of gold-focused ETFs can be the rock investors cling to in a storm. (To learn more about these investment products, read An Inside Look At ETF Construction.)

Opposite Reaction
One of gold's properties as a precious metal is that it does not react with most chemicals. In a similar fashion, when the overall stock market is in decline, investors searching for investments that aren't declining should set aside a portion of their portfolio for gold. On the day the Dow fell more than 500 points or -4.42%, the iShares COMEX Gold Trust ETF (AMEX:IAU), the SPDR Gold Trust ETF (NYSE:GLD) and the PowerShares DB Gold ETF (AMEX:DGL) each advanced 2.65%, 2.66% and 2.74%, respectively. (Learn about the history of gold in The Gold Standard Revisited.)

Gold Without The Bullion
DGL is the smallest and least expensive of the three ETFs with assets of $81 million and a market price just below $29. DGL is also the youngest ETF of the bunch, launching in January 2007. Unlike IAU and GLD, the DGL ETF does not actually hold gold bullion. DGL tracks the Deutsche Bank Liquid Commodity Index - Optimum Yield Gold Excess Return. The Gold Excess Return index consists of gold futures contracts and three-month U.S. Treasury securities.

The market prices of IAU and GLD are closer to the actual prices of gold bullion as displayed by gold futures contract prices. IAU has more than 1.9 million ounces of gold in trust. That's equal to nearly 60 tons or almost the equivalent weight of (40) 2008 4-Door Honda (NYSE:HMC) Accords. GLD has over 600 tons of gold in trust equally the weight of about 409 Accords.

The SPDR S&P 500 Index ETF (AMEX:SPY) traded down with the market, finishing -4.76% on the day of the 500-point market decline. The parachute effect of holding gold is apparent by noting that while SPY has declined -17.9% for the year, IAU, GLD and DGL were each down -5.9%, -5.9% and -7.3%, respectively.

Final Thoughts
The heavy bricks that investors think of when ideas of holding gold are conjured can be related to the weight of stability that gold ETFs can provide to a portfolio consisting strictly of equity. Investors should consult with a tax professional before investing in ETFs that hold physical commodities like gold bullion.

To learn more, read our related article The Gold Showdown: ETFs Versus Futures.

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