Gold: Time to Dump or Time to Buy?

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The meteoric rise of gold following the 2008 market collapse had many investors and hedge funds managers clamoring to beef up their holdings.  More than four years later, however, the spot light on the precious metal has died in lieu of a recovery across many of the indexes.  Have managers given up on gold, or do they see these calmer times as reasons to hold on, or possibly accumulate more?

Kyle Bass, founder of Dallas-based Hayman Advisors, urged fund managers in early December 2012 to not sell their gold holdings, reminding investors that government deficits across many developed economies such as the U.S. are still significant (see Hayman’s current holdings here).  Those who do not want to stray too far from their equity accounts can seek out gold ETFs or ETNs, which are exchange-traded funds and exchange-traded notes, respectively.  The latter is more of a newcomer in the capital markets but offers the same ease of access and liquidity benefits of ETFs.  Whereas an ETF gives an investor exposure to the direct underlying asset, an ETN represents a debt offering by a bank or financial institution that more or less tracks the benchmark it comprises (gold in this case).  (Read more on gold products and other ways to gain exposure.)

Kyle Bass

Two of the most common gold ETFs are the SPDR Gold Shares (NYSE:GLD), and the iShares Gold Trust (NYSE:IAU). GLD stands as the largest and most liquid gold ETF, which can lead to a more efficient tracking of the price of gold due to the heavy participation.  See which heavy-hitting fund manager made $5bn with gold in 2010 and holds almost 30% of his portfolio in GLD. IAU sees an advantage for the retail investor by creating more shares per ounce of gold than GLD, causing each share to have a smaller exposure to the asset but opening the door for more flexible capital and share sizes.

How can the more aggressive investor get gold exposure?

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