Precious metals ETFs (Exchange Traded Funds) are nimble investment vehicles used by both private and institutional investors to gain exposure to commodity prices. On Financial Expert, I strongly recommend that investors who wish to invest in commodities for general inflation hedging, should invest in a broad basket of commodities. As a halfway house there are the ‘commodity sector’ baskets, such as precious metals, industrial metals, energy and agriculture. These provide an element of diversification, while remaining to be a strong play on a specific ‘type’ of commodity.
Precious metal ETFs can invest in gold, silver, platinum and palladium, although each fund may vary. Some ETFs offer long or short, and leveraged funds are common. This is a strong indication of the type of investors that play with commodities, often characterised by aggressive and risky positions. The 10% fall in the price of silver in May 2011 will have made many bearish investors wealthy, however the behaviour of short ETFs are not always as you would expect. The effect of borrowing costs included in the fund structure, combined with the effect of ‘rolling forward’ futures contracts can often leave a short ETF investor with a loss despite the underlying commodity trading at a lower price than they bought at. This also applied to long precious metal ETFs and leveraged precious metal ETFs that deal in derivatives.
List of Precious Metal ETFs
BMO Precious Metals Commodities Index ETF – (Ticker ZCP-TSX)
ELEMENTS MLCX Precious Metals ETN – (Ticker PMY)
ETFS Leveraged Precious Metals ETF – (Ticker LPMT-LSE)
ETFS Physical PM Basket ETF – (Ticker PHPM-LSE)
ETFS Physical PM Basket Sterling ETF – (Ticker PHPP-LSE)
ETFS Precious Metals ETF – (Ticker AIGP-LSE)
ETFS Short Precious Metals ETF – (Ticker SPMT-LSE)
ETFS Precious Metals Basket Trust ETF – (Ticker GLTR)
ETFS White Metals Basket Trust ETF – (Ticker WITE)
iPath Dow Jones-AIG Precious Metals Total Return Sub-Index ETN – (Ticker JJP)
PowerShares DB Precious Metals Fund – (Ticker DBP)
This article is part of our series on how to invest in commodities. Visit the main article to explore the other method of commodities investing outside of exchange traded funds. If you’re looking for ETFs that track specific precious metals, try Physical Gold ETFs, Synthetic Gold ETFs, Silver ETFs, Platinum ETFs and Palladium ETFs.