Playing Precious Metals Through Equity ETFs
Michael Johnston submits:Perhaps no corner of the ETF market has exploded as rapidly as the precious metals space, as the democratization of an asset class previously off limits to many investors has resulted in billions of dollars in cash inflows. The SPDR Gold Trust (GLD) is now the second-largest ETF by total assets, with more than $53 billion under management. Two other physically-backed gold ETFs (IAU and SGOL) have aggregate assets of nearly $5 billion, while a couple of silver funds (SLV and SIVR) hold another $6 billion. Even the relatively young platinum ETF (PPLT, $485 million) and palladium ETF (PALL, $393 million) have been huge hits with investors. In aggregate these seven physically-backed precious metals ETFs represent about 8% of total ETF assets, a remarkable statistic highlighting the amount of interest in this asset class. Precious metals represent the only corner of the commodity market where exposure to spot prices is readily achievable and reasonably cost-efficient. Given the high value-to-weight ration of gold, platinum, and palladium (and to a lesser extent silver), it is possible for investors to maintain exposure to the spot price of the commodity. For most other commodities, physical storage isn’t practical–either for logistical or cost reasons. But the ability to achieve physical exposure is only one of the attractions of physically-backed ETFs. Because precious metals–particularly gold–are viewed as safe haven investments, they tend to perform very well during tumultuous economic environments. That makes them attractive as either an equity market hedge or a straight bet on volatility.Complete Story »
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