There are different ways you can invest in the precious metal futures contracts. You can open up a futures account, you can invest in individual mining stocks, or you can invest in an Exchange Traded Fund or special index that tracks your specific sector. Thankfully the Dow Jones came up with its precious metals index to make it easier on us investors to track this unique sector.
The Dow Jones Precious Metals Index was first published in 2002. Its objective is to represent the performance of U.S. trading stocks of companies engaged in the exploration and production of gold, silver and platinum-group metals. Component stocks are chosen from companies that are categorized into either the Gold mining subsector or platinum and precious metals subsector of the Industry Classification Benchmark (ICB). These components must be a U.S. listed stock or an ADR (American depository receipt). Eligibility screens and securities eliminate the very smallest and least liquid stocks.
The top 10 components that make up the DJ Precious Metals index are some of the most popular stocks that are traded on the market today. Barrick Gold Corp, Freeport-McMoran Copper and Gold Inc, Goldcorp inc, and Newmont Mining are just some of the top stocks that make up this fund. These companies are the talk of the town everywhere you look whether it is on CNBC or in the Wall Street Journal. The balance sheet and fundamentals on these companies are impeccable.
As of March 2008, the annualized total return on this fund is extraordinary. Its 1 year return is 33.63%, 3 year 23.89%, 5 year 23.19%, and total since in inception is an astounding 20.77% (1). That is pretty amazing considering we are going through one of the toughest economic periods of our lifetime. You can just see how these precious metals flourish in times of uncertainty and stagnant growth.
This may be a good index for the young investor or the person who is always on the go and can’t reach a computer to check on the individual markets that make up this fund. Instead of just trying to pick a specific commodity you can buy the fund and not worry about if Silver is lagging behind Gold or if Platinum is outperforming everyone else. The fund watches all the individual markets for you and with the returns it has given since inception it is not a bad choice when deciding where to allocate some of your capital.
(1) http://www.djindexes.com/mdsidx/downloads/fact_info/PreciousMetals_facts.pdf
Trading in futures and options involves a substantial degree of a risk of loss and is not suitable for all investors. Past performance is not indicative of future results.
