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Precious Metal ETFs

The Florida securities arbitration lawyers at McCabe Rabin, P.A. are investigating the marketing and sales to investors of exchange traded funds (“ETFs”) tied to gold and silver by brokerage firms. An ETF is a basket of investments such as stocks, bonds, commodities, currencies, options, swaps, futures contracts or other derivative instruments that tracks the performance of an underlying index or sector.

The financial crash caused investors to search for safe havens for their investments. TV and radio ads promoting doomsday scenarios pushed investors toward investments in gold and silver. But, gold and silver bars are heavy, hard to store, and not easy to trade. Many brokerage firms touted ETFs tied to gold and silver as the perfect solution.

Worried investors flocked in droves to precious metal ETFs such as the SPDR Gold Trust (NYSEArca: GLD), the largest physical gold EFT, and the iShares Silver Trust (NYSEArca: SLV), among others. In August 2011, with a net asset value of $77.5 billion, GLD surpassed the SPDR S&P 500 Trust (NYSEArca: SPY) to become the largest ETF in the world.

Unfortunately for investors, gold and silver has started to lose its luster. In the past 3 months alone, GLD shares have dropped 22%, while SLV has plunged more than 30%. From its August 2011 highpoint of $183.24, GLD is now trading at $118. At its peak in April 2011, SLV was trading at $46 a share, yesterday it closed at $18.21.

ETFs tied to the stock of companies engaged in gold and silver mining such as Market Vectors Gold Miners ETF (NYSEArca: GDX) and the Direxion Daily Gold Miners Bull 3x Shares (NYSEArca: NUGT), have faced a similar decline.

Brokers may have marketed the gold and silver ETFs as an easy way to add precious metals to an investor’s portfolio without adequately explaining the risks involved with investing in commodities and ETFs, especially non-traditional ETFs. FINRA rules require that brokerage firms have a reasonable basis to recommend a specific investment to its clients, and in some instances, the firms may have recommended gold and silver ETFs to risk-averse investors for whom the investments were unsuitable.

The securities arbitration attorneys at McCabe Rabin are investigating whether brokerage firms adequately disclosed the nature and risk of investing in precious metals and in ETFs to potential investors.

Investors nationwide who have suffered a loss of $100,000 or more as a result of an investment in a precious metal or other ETF purchased through a brokerage firm, and who may have a FINRA arbitration claim, may contact the Florida securities lawyers at McCabe Rabin, P.A. for a free and confidential consultation by calling toll free at 877.915.4040 or by e-mail to kelly@mccaberabin.com.

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