At this point in time, it seems unquestionable that the Federal
Reserve thinks that the economy is incapable of growth without more
simulative measures. Due to this, the central bank recently
announced a third round of quantitative easing, this time seeking
to establish a new floor in the MBS market with $40 billion in
purchases each month.
Beyond this, Bernanke also announced that low rates are likely
to be here for a bit longer, as he extended the ZIRP language out
to mid-2015, at least. If this wasn't enough, Japan also announced
an expansion of their QE program as well, suggesting a 'race to the
bottom' in terms of central banks and their easing policies.
With these types of plans, some are worried that we could be in
for a bout of inflation in short order. Luckily, a true inflation
scare could be at least a little ways off as the sluggish growth
prospects are likely to keep a lid on price increases in the near
term (also see
Can You Fight Inflation with this Real Return
Yet, with that being said, investors have already started to see
an increase in both prices and interest in the precious metals
market. These real assets-like gold, platinum, silver, and
palladium-cannot be printed and are often seen as a hedge against
currency debasement as a result.
Given the flood of cash being pushed onto the market by central
banks around the world, these worries over currency declines are
becoming louder and could spark more interest in precious metals as
This suggests that we could be at the start of a new bull market
for precious metal ETFs, so long as the Fed and other central banks
keep up their money printing ways, and all signs are pointing to a
continuation of this important trend for at least the next few
Precious Metal ETFs 101
However, while precious metals may be an interesting play in
this environment, it is always hard to say which will be the
biggest beneficiary from the shift. After all, each of the four
precious metals have their own uses and volatility levels,
suggesting that it could be tough to choose among the group for
outperformance at this uncertain juncture.
Fortunately, there are a few ETFs out there that can provide
exposure to multiple products in the precious metal space. This
diversified approach can potentially spread risk around and help
investors who may have otherwise been too focused in on a single
one-like gold-- for their precious metal exposure.
With this backdrop, we have highlighted below three ETFs that
look to give investors exposure to multiple metals in the important
sector. While any of the three could provide a hedge against
further easing from the Fed, there are some key differences between
the group which investors should definitely be aware of before
picking the right one for their portfolio:
PowerShares DB Precious Metals Fund (
PowerShares entrant in the precious metals space is the
futures-tracking DBP. The ETF utilizes futures contracts in both
gold and silver to achieve its exposure, tracking the db Liquid
Commodity Index-Optimum Yield Precious Metals Index.
For this, investors pay 79 basis points a year in fees, although
trading volumes are pretty good at just under 100,000 per day.
This, along with the solid AUM of $350 million produces tight bid
ask spreads suggesting that total costs won't be much higher than
the 79 basis point level.
Investors should also note that the ETF is heavily tilted
towards gold over its less expensive counterpart. Gold futures
account for nearly three-fourths of the assets, leaving just
one-fourth for silver (see
Gold ETFs: Why Bid Ask Spreads Matter
iPath Dow Jones-UBS Precious Metals ETN (
For investors seeking an Exchange-Traded Note to play the
segment, JJP could be a great choice. JJP also focuses on gold and
silver futures with gold contracts accounting for roughly 70% of
the portfolio and silver the rest.
The product charges a slightly lower expense ratio than DBP,
coming in at 75 basis points a year. However, the volume and AUM
for this note are far less, as average volume is just 4,000 shares
a day suggesting relatively wide bid ask spreads.
It should also be pointed out that since JJP is an ETN, it will
not have any tracking error and it will not hold any actual
securities in the portfolio. Instead, investors should consider JJP
as an unsubordinated debt security from Barclays which seeks to pay
out a return equal to that seen in the Dow-Jones UBS Precious
Metals Index (read
ETFs vs. ETNs: What's The Difference?
This means that if Barclays goes belly-up, investors in JJP
might not be made whole, so it is a factor to consider but is
likely to be a minor one overall. Still, the product could be a
solid choice for gold and silver exposure while also reducing
tracking error and the risk that comes from constantly buying and
selling futures contracts on the open market.
ETFS Physical Precious Metals Basket Shares (
The cheapest ETF on the list is also the only physically-backed
one, ETF Securities' GLTR. The fund charges a paltry 60 basis
points a year in fees while possessing over $200 million in
The product is also the only one to hold all four of the
precious metals, allocating some assets to palladium and platinum
in addition to the more traditional gold and silver. This
potentially creates a more diversified basket and also offers up a
more comprehensive choice in the precious metal market to ETF
After all, although GLTR does include platinum and palladium,
these two only account, combined, for 11% of the assets. Instead,
gold makes up slightly more than half of the basket while silver
accounts for another 37%.
This suggests that GLTR is also, despite its inclusion of more
'white' metals, heavily focused on gold and silver. Additionally,
investors should note that the product doesn't have the most
trading volume-just 10,000 shares a day on average-so bid ask
spreads could be relatively wide for this fund (also see
Platinum ETF Investing 101
Still, GLTR represents the only fund out there in the ETF world
that offers exposure to all four of the precious metals in
physically-backed form. Lastly, with its cheap expense ratio and
lack of worries over the futures curve, it could potentially make
for an interesting choice despite some of its drawbacks.
Either way, no matter which ETF investors choose in this space,
any of the three outlined above are likely to protect against
inflation and currency debasement brought about by more QE.
For this reason, investors should definitely think about adding
GLTR, JJP, or DBP if they are looking for an easy way to tap into
multiple precious metals in a single ticker as a way to stave off
some of the negative effects from more QE in the market.
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PWRSH-DB P METL (DBP): ETF Research Reports
ETFS-PH PRC MTL (GLTR): ETF Research Reports
IPATH-DJ-A PR M (JJP): ETF Research Reports
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