If you’re interested in investing in gold, it makes sense to consider a gold exchange-traded fund. You won’t have to store or protect any coins or bars in your home, and can buy and sell as many or as few shares as you want on a daily basis. However, think twice about investing in a gold ETF that represents and tracks the price of gold, and instead consider buying shares in gold mining companies.

Source: Stocks for the Long Run.

Image: Flickr user Tony Oliver

Opting for miners

If you don’t think you have the right touch to time your gold investment perfectly for profit, you might look at gold miners and companies tied to them instead. After all, whether gold is rising or falling, they’ll be exploring and producing, and aiming to make money. Not all succeed, though, so it can be smart to invest in a bunch, hoping the winners will outpace the losers. That’s what ETFs focused on gold mining do. You can further diversify by choosing an ETF that focuses on silver as well as gold, and a prime candidate is the Global X Silver Miners ETF ( NYSEMKT: SIL ). It is down about 18% over the past year, which has some value investors taking notice.

Despite its name, the Global X Silver Miners ETF holds stock in miners of both gold and silver. (After all, many companies don’t restrict themselves to just one metal.) Consider, for example, its recent top holding, at 14.5% of assets, Silver Wheaton ( NYSE: SLW )  . Silver Wheaton is a metal royalty interest company with a compelling business model. It isn’t investing in mining equipment and doing mining itself — instead, it funds miners in exchange for the ability to buy a portion of the precious metals produced at set low prices over long periods of time. It recently boasted an average cash cost per ounce of gold of $393 — far below prevailing prices. It is also boosting its gold investments: The yellow metal recently made up about 27% of its revenue and is expected to make up a third by 2018. Gold (and silver) might not be surging now, but they will eventually, and in periods of rising prices, miners and companies tied to them will reap greater profits.

Silver Wheaton has a compelling business model. Source: Silver Wheaton.

The Global X Silver Miners ETF offers a dividend that recently yielded about 0.8%, while it charges an annual fee of 0.65%. It has only been around for a few years — years in which metals were falling more than rising — but over the past three years it nevertheless outperformed precious metals stocks, on average.

If you’re a long-term investor who can tolerate volatility, and you believe in the long-term strength of precious metals, give this investment some consideration.

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