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With inflation pressures either rising or falling, the dollar can be negatively or positively affected. Precious metals, particularly gold, have acted as a hedge against the decline in purchasing power due to a declining dollar. Therefore, most investors have sought refuge using precious metals. Currency debasement and paper money in general have thus caused gold and other precious metals ETPs (ETFs & ETNs) to become an essential part of any portfolio.
The issuance of a wide variety of precious metals based ETPs has made adding these to portfolios relatively easy. Previous to their existence, it was cumbersome, time-consuming and off-putting to deal with these products for most investors. Then you either bought gold coins, ingots, futures or options, and, when all else failed -- gold stocks. Gold coins are an inefficient market with illiquidity and serious price spreads for buyers and sellers. Futures and options involved more leverage, qualified investors and a lot of paperwork not to mention more trading.
Easy monetary policies which began shortly after the equity market dotcom collapse (2000-2003) combined with the launch shortly thereafter of GLD in November 2004 (IAU shortly thereafter January 2005) gave us our first precious metals products. Here, we finally had a simple way to deal (buy or sell) gold in an unleveraged security with low costs and good liquidity. The financial crisis of 2008 and beyond led to central bank ZIRP (Zero Interest Rate Policies) and QE (Quantitative Easing--or, money printing) which left the value of the dollar as the primary casualty. To gain protection it was essential investors would gravitate to gold and other precious metals. As a result since the launch of GLD along with easy monetary policies, the ETF has gained 263%.
As this is written, gold prices are under heavy selling pressures which began in September 2009. Then as now, hot money seems to be leaving gold in favor of common stocks. But, we've experienced similar and greater percentage declines previously. The U.S. Fed is determined to keep interest rates low through 2014, and despite better recent economic data, some argue more QE is on the horizon.
All this said, gold (the "barbarous relic") has been valued by people globally for thousands of years. It and other precious metals will wax and wane along with economic conditions going forward.
As a former CTA (Commodity Trading Advisor) and CPO (Commodity Pool Operator), I know the value of having an allocation to direct precious metals markets. We were involved with trading precious metals futures in the late 1970s when price spikes in gold and silver took place as well as their dramatic decline.
As with previous ETF issues our technical analysis methodology involved using evaluating
charts but we also utilize weekly charts to fine tune positions. The latter circumstance is due to the unique nature of commodity contracts. Most futures contracts to which ETF / ETNs are linked expire quarterly. To be effective, direct commodity investing requires investors to be more active although investors in gold in particular view the asset now as a long-term hold. Nevertheless, we're willing to trade them with the trend being out sometimes when it was more prudent to stay in with hindsight. We do this because we've seen large price changes over the years and remaining sanguine about this sometimes isn't an option. Therefore, it pays to be active and utilize a combination of weekly and daily technical charts to manage risk.
Four risk factors should be considered:
The CFTC's varying considerations regarding commodity position limits as applied to the assets of ETF and ETNs--still in limbo.
Commodity exchanges may raise or lower margin requirements to limit speculation which has a substantial indirect effect on ETPs.
The credit quality of ETNs given these are "notes" many guaranteed by Barclay's and Deutsche Bank.
Backwardation (back month contracts lower than front month) and Contango (back months higher than front month) can negatively affect contract rollover for investors.
Since most commodities trade in dollars, the value of the dollar can positively or negatively affect price behavior.
Frankly, the rise in many precious metals, particularly gold, is much disliked by the powers that be since it's a negative vote by investors on their stewardship of fiscal and monetary conditions. As a result, they may take actions to restrain price rises where and when they can. In this regard, the Fed may do so by allowing interest rates to rise.
feature inverse and leveraged long/inverse ETNs for those investors wishing to hedge or speculate.
We feature a technical view of conditions from
chart views. Simplistically, we recommend longer-term investors stay on the right side of the 12-month simple moving average. When prices are above the moving average, stay long, and when below remain in cash or short. Some more interested in a fundamental approach may not care so much about technical issues preferring instead to buy when prices are perceived as low and sell for other reasons when high; but, this is not our approach.
Premium members to the ETF Digest
receive added signals when markets become extended such as DeMark triggers to exit overbought/oversold conditions. On occasion we combine
chart views to fine-tune our positions. Uniquely, we also remain aware of conditions with exogenous events (central bank policies, geo-political conditions and so forth.)
#10: ETF Securities Physical Palladium Shares
The Shares represent beneficial interest in the Trust, which in turn holds allocated physical palladium bullion bars stored in secure vaults in London and Zurich on behalf of the Custodian, JPMorgan Chase Bank, N.A.,. Each physical plate and ingot is properly segregated, individually identified and allocated towards the property of the Trust. All physical palladium conforms to the London Platinum and Palladium Market (LPPM) rules for Good Delivery.
The fund was launched in January 2010. The expense ratio is .60%. AUM equal $410 million and average daily trading volume is 156K shares. As of mid-March 2012 the YTD return was 9.52%. The one year return was 16.88%.
#9: ETF Securities Physical Plantinum Shares
The Shares represent beneficial interest in the Trust which in turn holds allocated physical platinum bullion bars stored in secure vaults in London and Zurich on behalf of the Custodian, JPMorgan Chase Bank, N.A.,. Each physical plate and ingot is properly segregated, individually identified and allocated towards the property of the Trust.
All physical platinum conforms to the London Platinum and Palladium Market (LPPM) rules for Good Delivery. The fund was launched in January 2010. The expense ratio is .60%. AUM equal $850 million and average daily trading volume is 117K shares. As of mid-March 2012 the YTD return was 19.60%. The one year return was -2.40%.
#8: iPath Dow Jones-UBS Precious Metals ETN
The fund follows the Dow Jones-UBS Precious Metals Subindex Total Return Index which consists of futures contracts in both gold (73%) and silver (26%).
JJP was launched in June 2008. The expense ratio is .75%. AUM equal $51 million and average daily trading volume is 13K shares.
As of mid-March 2012 the YTD return was 7.16%. The one year return was 9.65%.
#7: PowerShares DB Precious Metals Fund
DBP follows the DBIQ Otitim Yield precious metals Index Excess Return which is a rules based index compoased of futures contracts in both gold (80%) and silver (20%).
The fund was launched in January 2007. The expense ratio is .75%. AUM equal $441 million and average daily trading volume is 117K shares.
As of mid-March 2012 the YTD return was 6.77%. The one year return was 10.30%.
#6: ETF Securities Physical Silver Shares
The Shares represent beneficial interest in the Trust, which in turn holds physical allocated silver bullion held in vaults by the Custodian (HSBC Bank USA N.A.). All physical silver held with HSBC conforms to the London Bullion Market Association's (LBMA) rules for Good Delivery.
The fund was launched in July 2009. The expense ratio is .30%. AUM equal $623 million and average daily trading volume is 365K shares. As of mid-March 2012 the YTD return was 16.02%. The one year return was -6.83%.
#5: iShares Silver Trust
The assest of the trust consist primarily of silver held by the custodian on behalf of the trust. The objective of the trust is for the shares to reflect the price of silver less the trust's expenses and liabilitities.
The fund was launched in April 2006. AUM equal $10 million and average daily trading volume is 20M shares. As of mid-March 2012 the YTD return was 19.72%. The one year return was -7.85%.
ProShares features leveraged (2X) long or short ETFs (AGQ and ZSL).
#4: PowerShares Gold Fund
The fund follows the DBIQ Optimum Yield Gold Index Excess Return which is a rules based index composed of futures contracts on gold and is intended to reflect the performance of gold. The fund was launched in January 2007.
The expense ratio is .50%. AUM equal $425 million and average daily trading volume is 156K shares. As of mid-March 2012 the YTD return was 4.72%. The one year return was 15.94%.
#3: ETF Securities Swiss Gold Shares
The shares represent beneficial interest in the Trust, which in turn holds allocated physical gold bullion bars stored in secure vaults in Zurich Switzerland on behalf of the Custodian, J:P Morgan Chase Bank, N.A. Each physical bar is properly segregated, individually identified and allocated towards the property of the Trust.
All physical gold conforms to the London Bullion Market Association's rules for Good Delivery. The fund was launched in September 2009. The expense ratio is .39%. AUM equal $1.8 billion and average daily trading volume is 1.9M shares. As of mid-March 2012 the YTD return was 4.98%. The one year return was 17.04%.
#2: SPDR Gold ETF
The Trust holds gold bars and is expected from time to time to issue Baskets in exchange for deposits of gold and to distribute gold in connection with redemptions of Baskets. The investment objective of the Trust is for the Shares to reflect the performance of the price of gold bullion, less the Trust's expenses. The Sponsor believes that, for many investors, the Shares represent a cost-effective investment in gold.
The Shares represent units of fractional undivided beneficial interest in and ownership of the Trust and trade under the ticker symbol GLD on the NYSE Arca. The fund was launched in November 2004. The expense ratio is .40%. AUM (Assets under Management) equal $70 billion and average daily trading volume is 13M shares. GLD demonstrates better than any other how being first to market for a popular product will allow the issuer to achieve dominance in the space. As of mid-March 2012 the YTD return was 6.78%. The one year return was 16.88%.
#1: iShares Gold Trust ETF
The assets of the trust consist primarily of physical gold held by a custodian (J.P. Morgan Chase) on behalf of the trust. The fund was launched in January 2005. The expense ratio is .25%. AUM equal $10 billion and average daily trading volume is less than 6.6M shares. As of mid-March 2012 the YTD return was 5.06%. The one year return was 17.13%.
It's useful to note that for competitive reasons iShares lowered the fee for IAU and split the shares 10:1 making it somewhat more attractive.
We rank the top 10 ETF by our proprietary stars system as outlined below. However, given that for the most part we're dealing in single commodity focused issues, rankings may come down to competitive fees, structure and inherent volatility of the linked precious metal. If an ETF you're interested in is not included but you'd like to know a ranking send an inquiry to
and we'll attempt to satisfy your interest.
Strong established linked index
Excellent consistent performance and index tracking
Low fee structure
Strong portfolio suitability
Established linked index even if "enhanced"
Good performance or more volatile if "enhanced" index
Average to higher fee structure
Good portfolio suitability or more active management if "enhanced" index
Enhanced or seasoned index
Less consistent performance and more volatile
Fees higher than average
Portfolio suitability would need more active trading
Average to below average liquidity
Index is new
Issue is new and needs seasoning
Fees are high
Portfolio suitability also needs seasoning
Liquidity below average
Precious metals have been at the center of investor attention over the past few years. Gold especially has been the best performing asset along with bonds. Other metals in this list have base metals qualities and are now declining due to economic growth uncertainties.
It's also important to remember that ETF sponsors have their own competitive business interests when issuing products which may not necessarily align with your investment needs.
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The ETF Digest is long a partial position in IAU.
(Source for data is from ETF sponsors and various ETF data providers)
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