ETFs for Commodities & Gold

11/07/2017 5:00 am EST

Focus: COMMODITIES

Robert Carlson

Editor, Retirement Watch

I expect the global economy to continue growing and inflation to increase, causing commodity prices to rise steadily for the next year or two years, explains Bob Carlson, editor of Retirement Watch.

We joined the rise a few months ago by owning the diversified commodities exchange-traded fund, iShares Commodities Select Strategy (COMT).

The fund can own any of the 24 commodities in the S&P Goldman Sachs Commodities Index but doesn’t track the index. The fund’s commodity allocations are determined using the proprietary quantitative models of BlackRock.

The fund tries to capture intermediate and long-term trends, not short-term moves. Energy usually is the highest concentration and will be at least 25% of the fund. The fund can own futures, options, or stocks of commodity producers, broadly defined.

It recently was invested about 30% in stocks and 70% in futures and options. The stock portion recently was 16% agriculture, 6% base metals, 4% timber, 3% precious metals and 2% energy.


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The futures were invested 42% in energy, 15% in agriculture, 6.5% in base metals, 4.6% in livestock and 1% in precious metals. COMT is up 2.71% in the last four weeks and 3.90% so far in 2017.

We own gold through iShares Gold Trust (IAU). If inflation increases more than markets anticipate, as I expect, gold should rise. Inflation doesn’t have to return to 1970s levels, it only has to be more than the markets expect for us to profit.

I also want us to own some gold as a hedge against global political turmoil and crises. We’ve seen gold rise whenever there’s an increase in political troubles around the globe, and then fall when troubles subside. The global political climate is likely to remain hot, so I want to own some gold.

The fund usually has the lowest fees among the gold ETFs, making it the cheapest, most efficient way to own gold. The ETF is down 2.12% in the last month but up 11.92% so far in 2017. Gains in IAU incur the 28% tax rate on long-term capital gains. You can own IAU in an IRA or other retirement plan without penalty.

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