Posted on 22 July 2011.
These are go-go days for precious metals ETFs, particularly those backed by physical holdings of gold, silver and related fare. Whether it has been Europe’s sovereign debt contagion or the Federal Reserve’s practice of employing historically low interest in a failed attempt to jump-start the U.S. economy, investors all over the globe have been chased out of former safe havens such as the euro and the dollar and they have turned to precious metals.
Prior to the evolution of the ETF industry, investors only had two choices for accessing the precious metals market: Either maintaining their own physical holdings of gold and silver or heading to the volatile futures market where accounts can be wiped out in the blink of an eye. Precious metals ETFs provide a happy medium as buyers of these funds gain all the advantages of ETF investing without the risks of the futures market or the chore of guarding direct physical holdings.
Along those lines, it’s no wonder that the SPDR Gold Shares (NYSE: GLD), the king of the precious metals ETF universe, has become the second-largest ETF in the world by assets, trailing only the SPDR S&P 500 Trust (NYSE: SPY).
When it comes to precious metals ETFs, those that are backed by physical holdings of gold, such as GLD and the iShares Gold Trust (NYSE: IAU), dominate the landscape. That’s not surprising as gold as historically been the safe haven sought by investors when a faltering dollar and inflation fears permeate the investment lexicon and with gold hovering around $1,600 an ounce, a record high in nominal terms, GLD, IAU and others remain must haves for nearly any portfolio.
That said, there is much more to the world of precious metals ETFs. Silver, gold’s cheaper and perhaps more volatile cousin, was on tear through much of 2010 and into the early part of this year before the CME Group raised margin requirements for silver futures contracts. That sent precious metals ETFs like the iShares Silver Trust (NYSE: SLV) tumbling, but silver has rebounded in recent weeks and SLV looks poised to rally back to its previous highs in the $48 area.
The precious metals ETFs conversation doesn’t end with silver. More adventurous souls should look into the ETFS Physical Platinum Shares (NYSE: PPLT) and the ETFS Physical Palladium Shares (NYSE: PALL). Those two ETFs are backed by physical holdings of those metals and while volatile, they are excellent ways to play a resurgence in risk appetite if the global economic recovery gains steam.
The bottom is that in an era of depressed interest rates, rampant government fiscal chicanery and dwindling safe havens, no portfolio should be with out one or two precious metals ETFs.
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