Several weeks ago I took a look at gold and some gold miners as the price of gold was testing an important level, and I hypothesized that the result could set the direction for the next trending move. It appears that gold cleared the important resistance level highlighted in the article and that it could be on its way to testing its all-time highs. I also followed up that article with a look at silver and silver miners possibly following gold's move. While there are several gold mining stocks that are available to traders, not many traders realize that there are also several ETF alternatives available for trading the actual metal directly.
IN PICTURES: 7 Tools Of The Trade
Most traders are familiar with the SPDR Gold Trust ETF (NYSE:GLD) as a play for gold. The investment objective of that trust is for the shares to reflect the performance of the price of gold bullion. The chart for GLD closely mirrors the chart for spot gold as would be expected. GLD has been in the process of consolidating for several months following a sharp rally to all-time highs last year. Recently, GLD had cleared an inverse head and shoulders base and began to set higher highs and higher lows. The recent move above the early May highs is leading to a test of the all-time highs set in November. A move above the all-time highs could lead to a strong breakout and should be respected.
While many traders are aware of the aforementioned GLD, there is also a leveraged ETF that attempts to mimic the price of spot gold. The Deutsche Bank AG DB Gold Double (NYSE:DGP) ETF is the same pattern as GLD as would be expected. The main difference is that the moves in DGP are larger in percentage terms due to the way the ETF is structured. There are plenty of caveats to trading leveraged products and traders should thoroughly research them to verify if they are suitable for their investment objectives. That being said, DGP would benefit from a move in spot gold and provides a good alternative to GLD.
Much like GLD, the iShares Silver Trust ETF (NYSE:SLV) is the most recognized vehicle for trading silver in the equities market. The objective of the trust is for the value of the iShares to reflect, at any given time, the price of silver owned by the trust at that time less the trust's expenses and liabilities. The one important thing to notice in SLV is that it is lagging gold. One reason for this is that gold is still considered a flight to safety alternative, and with the recent uncertainty surrounding Greece and Europe it surged without the corresponding move in silver. However, silver will often play catch up with gold, and if inflation is the driver, it's possible that silver could attempt to close the gap. The level to watch in the SLV chart below is around $18.50. A move above this level should lead to new highs for the ETF.
The leveraged alternative to SLV is the ProShares Ultra Silver (NYSE:AGQ) ETF. The chart structure is nearly identical to SLV with the main difference being the larger percentage of the moves. Much like DGP, traders should be aware of the inherent risk of trading leveraged products, but it does offer an attractive option for traders seeking increased volatility.
The Bottom Line
One benefit to trading these vehicles is that they are not directly correlated to the stock markets per se. While mining stocks offer the possibility of larger returns, they also offer substantial risk if the markets continue to correct in the near future. Adding ETFs such as these, offer traders some diversification, and can help round out a portfolio. Other options for trading gold and silver include the ETFS Gold Trust ETF (NYSE:SGOL) and the ETFS Silver Trust ETF (NYSE:SIVR). Gold and silver remain in multi-year bull markets on longer time frames and could be ready to resume their trends. These products offer traders a few different ways to participate without getting involved in trading futures.
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Charts courtesy of stockcharts.com
At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article.