Friday , 22 September 2017


Protect Profits and Reduce Risk With Gold and U.S. Dollar ETFs

If you believe further political disruptions around the world will likely occur in 2010 and/or 2011 and that we will also likely see inflation begin to rise within the next 12 months then we should see higher gold prices. Furthermore, if the economy falters once again, many investors will sell their common stocks and put their money in gold pushing the price up even further. Words: 779

As such, one of my favorite areas to invest in to protect my profits made over the past year and to reduce my portfolio risk is an ETF that invests in gold. SPDR Gold Shares ETF (GLD) has advanced 150% during the past five years compared to an advance of just 1% for the Standard & Poor’s 500 Index and during the ugly bear market from October 9, 2007, until March 9, 2009, GLD was up 23.9% compared to the -56.8% drubbing that the S&P 500 took.

In further edited excerpts from the original article* Roy Ward (www.iconoclast-investor.com) goes on to say:

SPDR Gold Shares ETF (GLD)
As such, one of my favorite areas to invest in to protect my profits made over the past year and to reduce my portfolio risk is an ETF that invests in gold. SPDR Gold Shares ETF (GLD) has advanced 150% during the past five years compared to an advance of just 1% for the Standard & Poor’s 500 Index and during the ugly bear market from October 9, 2007, until March 9, 2009, GLD was up 23.9% compared to the -56.8% drubbing that the S&P 500 took.

GLD seeks to replicate the performance of the price of gold bullion on a one-to-ten ratio. It pays no dividend, has a management fee of only 0.40%, trades on the NYSE and may be bought and sold like any other security. The purchase of GLD will counteract the volatility of common stocks and will guard against a possible fall in bond prices.

PowerShares DB U.S. Dollar ETF (UUP)
Another of my favorite areas to invest in to protect my profits and reduce my portfolio risk is an ETF that invests in the U.S. dollar. PowerShares DB U.S. Dollar ETF (UUP) is a good hedge against declining stock prices. UUP rose 10.1% during the recent bear market while the S&P plummeted 56.8%. UUP shares are less volatile than the stock market or gold, which is another plus.

PowerShares Deutsch Bank U.S. Dollar ETF seeks to track the price and yield performance of the Deutsche Bank Long U.S. Dollar Futures Index. This index is comprised solely of long futures contracts. The futures contract is designed to replicate the performance of the U.S. Dollar Index – the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc vis-a-vis the U.S. dollar. Total ETF expenses are 0.83% of total value, which is reasonable. UUP pays no dividend.

We follow the actions of hedge funds, because they invest trillions of dollars and can cause major fluctuations in the stock market and other financial markets. Hedge funds and other institutional investors have been selling dollars and buying stocks and commodities during the past several quarters. Sometime in the not too distant future, investors will begin to reverse these trades by buying U.S. dollars and selling stocks and commodities. Massive U.S. dollar buying will push the price of the U.S. dollar substantially higher, and UUP shares will rise, too.

UUP shares declined 18% during the nine months ended 12/1/09 but have increased 6% during the past two months. I believe the U.S. dollar will continue to rise. The U.S. economy will likely improve while some European and the Japanese economies stumble along. The purchase of UUP will neutralize the volatility of common stocks and will offer a hedge against a possible fall in stock and bond prices.

Bond ETFs
Bond and bond ETFs are usually another good way to hedge against stock market losses but current bond prices are very high and could fall when U.S. interest rates begin to climb.

While I still hold some bond ETFs I am avoiding new bond ETF purchases preferring to buy gold and U.S. dollar ETFs in the current market environment.

*http://seekingalpha.com/article/196040-two-etfs-to-reduce-portfolio-risk-spdr-gold-and-powershares-db-u-s-dollar?source=article_sb_picks (J. Royden Ward is editor of Cabot Benjamin Graham Value Letter (http://www.cabot.net)

Editor’s Note:
– The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
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