The Midas Touch Of Precious Metals ETFs

The Midas Touch Of Precious Metals ETFs

Precious metals especially gold and silver have been used by man from times immemorial for purposes of adornment as well as currency. The most recent method of investing in these metals is through Precious Metals ETFs.

Different Ways Of Investing In Gold And Silver:

  • Actual gold and silver can be held in the form of jewelry but there are other costs involved like ‘making charges’.
  • They can be held in the form of coins or ingots but then there is the issue of safety.
  • Gold and silver futures can be purchased but there is the additional task of ‘roll over’ which will involve high brokerage costs. 
  • Precious Metals ETFs makes it possible to invest in gold and silver without having any disadvantages of the above.

In addition to gold and silver, platinum and palladium – a metal which belongs to the platinum family are also precious metals. These white metals are widely used in the automobile industry for production of catalytic converters. Precious metals ETFs of platinum and palladium have also been introduced of late and are quite popular.

Different Precious Metals ETFs Help In Different Kinds Of Economic Conditions:

  • To combat recession and avoid deflation central banks across the world have pumped in money leading to inflation fears. In such a scenario, gold is an effective hedge and Precious Metals ETFs makes investment in gold simple.
  • Silver is used for industrial purposes. So when the economy is doing well, silver prices rise and investments in these precious metals ETFs yield a good return. The demand for silver also increases in times of uncertainty and like gold it is used as an inflation hedge.
  • As mentioned earlier, platinum and palladium are used in the automobile industry. They reduce the toxic emissions of automobiles. Tough emission standards, increasing corporate social responsibility, heightened environmental concerns of individual consumers have all led to growth of consumption of these metals. These precious metals ETFs are the best option when economic growth is expected, a period when automobile industry will boom. Palladium is rarer than platinum and its volatility is suitable for aggressive investors.

Precious Metals ETFs Can Be Any Of The Following:

  • Physically backed funds: These invest in the actual metals and are the safest.
  • Future based Funds: These precious metals ETFs invest in the future contracts of the respective metal and have additional expenses of roll over costs. Also, generally the sale of the contract nearing expiration will be at a low cost and purchase of the next contract will be at a higher cost resulting in a loss called ‘contango’.
  • ETNs (Exchange Traded Notes): These are a variation of ETFs. These notes are debt instruments and the holder will lose out if the issuer of these notes turns insolvent.
  • Precious Metals Miner ETFs: These precious metals ETFs invest in the stocks of companies which mine the respective metals. These are basically equity investments and have all the risks associated with the stock market. A gold miner ETF is more volatile than gold and during times of economic downturn tends to underperform gold.

Investments in precious metals ETFs are not risk-free.  For instance, gold prices will peak in times of uncertainty and fall sharply once the crisis is over. So to make a killing, buying and selling at the right time is a must.
For long term safety, diversification in investment is the key and investing in Precious Metals ETFs is one good way of doing it.