Anyone who knows anything about precious metals investing knows that things can get clunky. Buying bullion products at a premium, figuring out how and where to store them, handling insurance...
Cue the precious metals ETF.
They're a hassle-free way of gaining exposure to gold, silver, platinum and palladium, whether in combination or individually. Exchange-traded funds, in the context of precious metals, are sometimes referred to as "paper gold". And when they are, it's usually not in a complimentary manner.
Nonetheless, they offer an exceedingly convenient way of investing in precious metals for those with an eye on the sector, but not much desire to purchase physical metals.
Imagine gold itself had a stock of its own, and you get the picture. Let’s dive into the guide.
Precious metals ETF - Investors Guide
When it comes to precious metals investing, there is definitely a bit of polarization with investors.
Bullion, especially gold, tends to attract investors who like tangible assets. Often in the truest sense of the word.
To a die-hard bullion investor, a precious metals ETF is just numbers on the screen. They find gold derivatives antithetical to precious metals investment. On the other hand, an immense number of investors simply don't find bullion investment convenient or even feasible.
They want to invest in gold and other precious metals in the easiest way possible. Depending on how one goes about their investment, gold ETFs and the like can even prove a safer option than purchasing bullion.
But let's first go over what these investment vehicles are.
What is an ETF?
As we mentioned previously, an ETF can be thought of as a stock for one or multiple assets, and even stocks themselves. It is, in essence, a straightforward way of gaining exposure to exactly the assets you want through a single investment vehicle. Of course, it's far from uncommon for investors to buy several kinds of ETFs, as each has its own allure.
Part of the similarity with equities comes from ETFs' ability to be traded on an exchange, true to the name. Things can get a bit convoluted here the more assets an ETF has. The fund has its own price, and it's purchased and traded at that valuation. Yet it has to track the price of a myriad of assets, such as stocks, commodities and many more.
Therefore, an ETF, and especially a broader one, is kind of like a company on the stock market. It's bought and sold based on reputation. Top ETFs generally outstrip less popular ones by a significant margin. For the most part, precious metals ETFs are considerably more straightforward than those that include other asset classes.
Learn all about ETFs - See the guide now!
What is a Precious Metals ETF?
A precious metals ETF, or at least the more straightforward ones, is a derivative that is meant to track the price of its underlying assets as closely as possible to the spot price. Generally, a deviation of under 1% when it comes to tracking accuracy is considered good.
This doesn't, however, mean that the price of a precious metals ETF is anywhere close to the price of an ounce of a precious metal. Right now, gold is trading around $1,850 an ounce, its standard denomination.
Yet a SPDR stock price is just over $171. This is the result of the fund's managers having to cover various fees by liquidating the bullion or mining stocks covering the ETF.
Some view this as good, and some as bad. Since top precious metals ETFs have such an accurate tracking of spot prices, owning their stocks can be seen as a "cheaper" alternative to purchasing gold by the ounce.
The returns, capital gains tax notwithstanding, are generally going to be the same. The opposing view is that there is too little transparency when it comes to funds, a key point that bullion proponents often highlight.
Precious metals funds can track the price of a single metal, multiple metals or a combination of spot prices and mining stocks. The more assets that are tracked, the more complex the investment vehicle becomes.
Whereas a strictly gold ETF only has you wondering or worrying about gold prices, one that includes miners can also cause you to stress out in regards to how these individual companies are performing.
List of Precious Metals ETFs
Courtesy of Stockdio.com, here's an awesome table of the most well known precious metals ETFs:
Best Precious Metals ETFs
In this section, we'll go through each of the top precious metals ETFs, starting with GLD.
SPDR Gold Shares
We've all heard of the gold standard, and the SPDR Gold Shares, sometimes referred to as SPDR Gold Trust or simply GLD, is the gold standard of gold ETFs. SPDR is actually the most popular ETF in general, but their gold product definitely stands out.
The fund is backed by allocated 400-ounce gold bullion bars and enjoys some high-profile partnerships in the form of having BNY Mellon as its trustee and HSBC as the custodian of its physical gold.
As you'd guess from the GLD moniker, it serves as a proxy for gold price with an annual tracking error of 0.93%, which is reasonably accurate.
Although holdings in all funds can vary, SPDR Gold Shares holds around 40 million ounces of physical gold, translating to more than $60 billion in net asset value.
iShares Silver Trust
iShares Silver Trust, or SLV, is to silver what SPDR Gold Shares is to gold.
It's the largest and most recognizable "silver-only" ETF, with assets oscillating around $14 billion. Likewise, it aims to track silver prices close to spot.
Notably, it doesn't liquidate assets due to price pressures, but only due to aforementioned reasons of covering costs.
It has a lengthy track record, having been in operation since 2006. And it also enjoys some big-name backing. For starters, the stock itself is issued by BlackRock, one of the largest and most recognizable investment companies.
It also doesn't hurt to have JPMorgan Chase as the custodian of your physical silver.
There can be a lot of hazards to buying silver bars or physical silver via retail markets, and gaining exposure via an ETF can be a great way to minimize risk from scams.
Aberdeen Standard Physical Platinum Shares ETF
The first on our list of Aberdeen funds, the Aberdeen Standard Physical Platinum Shares ETF can be viewed as the premier platinum ETF. It holds over $1 billion of platinum bullion, whose storage is split between vaults in Switzerland and the U.K. Having its holdings in allocated metal is likewise a plus.
Like the previous ETFs, PPLT is a "pure" tracker of platinum, and exposure to the metal can be gained with a single stock. The Aberdeen Platinum ETF has been in operation since 2010.
Aberdeen Standard Precious Metals Basket Shares ETF
Here is where we start to get into the more complex precious metals funds.
As opposed to tracking a single precious metals, Aberdeen Standard Precious Metals Basket Shares ETF, or GLTR, tracks all four. As with the other Aberdeen ETFs on this list, BNY Mellon acts as both its trustee and custodian.
It also shares vault locations and was launched in 2010. Understanding this fund's price movements is a lot more difficult than those tracking a single precious metal.
Nonetheless, with its reputation, it's an easy and affordable way to gain exposure to four precious metals with a single stock. The fund's combined assets amount to just over $1 billion.
Aberdeen Standard Physical Palladium Shares ETF
The palladium counterpart to the firm's platinum fund, Aberdeen Standard Physical Palladium Shares ETF or PALL covers the price of palladium.
It differs from the others by only having a U.K. vault, but shares the custodian, trustee and year of inception.
The fund's palladium, like other metals, is allocated, though not eligible for physical delivery.
It has a notably lower total value, with $373 million in assets under management.
iShares MSCI Global Gold Miners ETF
iShares MSCI Global Gold Miners ETF is one of the two funds that venture away from spot prices and into the realm of miners.
Instead of tracking the performance of gold, RING tracks the performance of 30 different mining companies combined. When investing in this fund, you're betting more on the performance of miners than you are on individual metals.
There's definitely a bit of murkiness when it comes to figuring out the assets that the fund holds, but there's no denying their value, with over $505 million total held. And, being issued by BlackRock, it gets a bit of name recognition, too.
iShares MSCI Global Silver & Metals Miners ETF
Another BlackRock-issued precious metals miners fund, iShares MSCI Global Silver & Metals Miners ETF or SLVP places more emphasis on silver. The slightly confusing name of the fund has to do with how silver is mined. As opposed to gold, silver is generally obtained as a byproduct of mining industrial metals.
Therefore, this fund invests in some 25 companies whose revenue comes "primarily" from silver mining. In the absence of dedicated silver mining companies, it will have to do. SLVP has a slightly lesser total asset value with $259 million, though the figure is far from inconsequential.
FAQs About Precious Metals ETFs
Yes. When it comes to precious metals ETFs, investors are strapped for choice. They can choose to invest in a fund that tracks a single precious metal, a basket of metals, or miners. Those who wish to venture further can also find funds that give them exposure to both precious metals and other asset classes.
Partially. Compared to BlackRock, Vanguard is definitely lagging in the precious metals department when it comes to fund offerings. The only precious metals fund that Vanguard offers is Global Capital Cycles Fund, or VGPMX.
A quarter of its $2.3 billion in assets is invested in both precious metals and mining companies. The renaming of this fund from Vanguard Precious Metals and Mining Fund caused a bit of ruckus among analysts and traders pondering on the sector's bearishness.
Yes. The aforementioned Aberdeen Standard Precious Metals Basket Shares ETF is only one example of a fund whose underlying index both spot gold and silver. Depending on investment desires, the choice to invest in a precious metals fund can greatly expand the amount of options for those wanting to own multiple metals.
This is the polarizing part of precious metals investing. The answer depends on the individual investor. Some hold only bullion, some hold only paper gold. Some invest only in precious metals miners and others in futures contracts. The choice boils down to preference more than anything.
Other Ways To Invest In Precious Metals
- Bullion: Purchasing bullion is certainly the oldest and most straightforward method of precious metals investment. You buy physical gold or other metals in the category in the form of coins, bars or rounds and store it however you see fit. Besides storage itself, an issue with this form of investment is that smaller products tend to have large premiums. In the case of some bullion coins, premiums can be as high as the precious metals content in the coin.
- Gold IRAs: A somewhat less direct way of investing in bullion, but no less popular. It's especially prominent among those with a long-term orientation towards alternative investments. The gold IRA company acts as an intermediary and, with the help of a custodian and a third-party depository, purchases and stores physical precious metals on your behalf.
Read more: See our complete guide on Gold IRAs.
- Stocks: While some of the aforementioned funds offer exposure to mining stocks, there isn't as much control over your investment as some would like. Investing in up to 30 mining companies is definitely above the risk tolerance of many. Purchasing stocks of individual miners allows you to carefully select how you'll be exposed to this sector and gives you far greater control over your investment.
Wrapping up - Should You Invest in Physical Precious Metals ETFs?
Precious metals are generally seen as a blue-chip investment and not really something that investors can go wrong with. Precious metals ETFs tend to shift this view for some. By investing in a precious metals ETF, you haven't actually bought the metal, but rather a stock in the company providing exposure to it.
Yes, the company might have good branding and foundations, but the underlying risks are always there. Just the lack of physical delivery with many of the ETFs, along with constant liquidations that lower the fund's price, are enough of a deterrent for many. Bullion investors aren't as vulnerable to any individual investment company act.
On the other hand, a safe annual return is all that plenty of investors care about, and the aforementioned entries offer just that. Despite having physical backing behind their product, it's important that every investor in precious metals ETFs understands the risks associated with this over more direct exposure, such as bullion.
So long as that's covered, precious metals funds are one of the easiest and safest ways to generate returns year after year, especially when it comes to funds with a basket of assets. Precious metals are known for steady returns, and the option to invest in them with a hands-off approach is ideal for many.