Three Materials ETFs To Cash In On Gold’s Luster (VAW, XLB, MXI)

As a result of waning confidence in global growth and currency instability, investors continue to seek gold as a safe haven, pushing the shiny metal to record levels.

On Friday, gold soared passed the $1,260 per ounce mark, pushing gold futures up nearly 15 percent year-to-date and there is positive support indicating that the metal wants to go higher.

From a demand perspective, not only are risk-averse investors turning to gold, but central banks are as well.  According to data released by the World Gold Council, nations around the world are gobbling up gold in an attempt to decrease risk and mitigate the effects of a country’s economic policies. 

Russia appears to be the largest buyer of gold among all central banks, purchasing nearly 26.6 metric tonnes of the metal in the first quarter of 2010.  After Russia, the Philippines reportedly purchased 9.6 tonnes earlier this year in an attempt to support its local industry and hedge against inflationary pressures.

The third major buyer of the precious metal is Kazakhstan, which reportedly has purchased 3.1 tonnes in the first quarter of the year.  Not only does gold enable these nations to diversify their wealth by spreading risk, but it also bolsters their global creditworthiness. 

Although India and China have not made any significant gold purchases in 2010, they are still considered major buyers of gold.  In November 2009, India increased its gold reserves by 55 percent through the purchase of 200 tonnes of the metal from the International Monetary Fund.   

As for China, it is the world’s largest producer of gold and often buys from its own mines, not publicly reporting the purchases.  With this in mind, the nation could potentially be the world’s largest buyer of gold.  One thing is for sure, China is a major buyer and holder of gold and has admitted to significantly increasing its gold holdings over the last seven years.

The appeal of gold, both from an investor’s perspective and from a central bank’s will likely remain prevalent as fear continues to loom over the overall strength of the global markets and safe haven assets are sought after. 

In addition to traditional ways of playing gold, the following materials exchange traded funds (ETFs) are likely to reap the benefits of positive price support in the metal:

  • The iShares S&P Global Materials (NYSE:MXI), which allocates nearly 10.1% of its asset base to companies involved in mining, exploration and production of gold.  Some of its top holdings include Barrick Gold Corp (NYSE:ABX), Goldcorp (NYSE:GG) and Newmont Mining (NYSE:NEM).  MXI closed at $57.47 on Friday.
  • The Materials Select Sector SPDR (NYSE:XLB), which allocates 5.37% of its assets to Newmont Mining and 9.76% of its assets to Freeport McMoRan (NYSE:FCX), who is a major player in the mining and production of gold.   XLB closed at $30.95 on Friday.
  • The Vanguard Materials ETF (NYSE:VAW), which allocates 7.16% of its assets to Freeport McMoRan and 4.88% to Newmont Mining.  VAW closed at $65.85 on Friday.

When investing in these ETFs, it is equally important to keep in mind the inherent risks involved.  To help protect against these risks the use of an exit strategy which identifies specific price points at which an upward trend could come to an end is of importance.

According to the latest data at, the price points are as follows: MXI at $54.89; XLB at $29.57; VAW at $62.76.  These price points change on a daily basis and are reflective of market volatility and conditions.

Written By Kevin Grewal from Smart Stops

Kevin Grewal serves as the editor at, where he focuses on mitigating risk and implementing exit strategies to preserve equity. Additionally, he is the editor at The ETF Institute, which is the only independent organization providing financial professionals with certification, education, and training pertaining to exchange-traded funds (ETFs). Prior to this, Grewal was an analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds a bachelor’s degree from the University of California along with a MBA from the California State University, Fullerton.

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