New ETFs Enable Investment in a Bundle of Precious Metals


Headlines about record gold prices are drawing investor attention to precious metals. Not surprisingly, precious metals ETFs (exchange-traded funds) have seen substantial money inflows over the last year.

Since the start of the year, about $8.4 billion has poured into commodities precious metals ETFs, with another $1 billion added to equity precious metal ETFs (funds that track mining companies), according to the most recent Morningstar fund flows update. More than $98 million of investor capital flowed into the commodities precious metals ETFs category in October.

Morningstar reported Wednesday that total assets in commodities precious metals ETFs jumped from $45 billion in October 2009 to $73 billion as of the end of October 2010.

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"Interest on the institutional and retail side is growing on the heels of a lot of economic concerns over money supply, inflation fears and the desire to broaden exposure into commodities," said ETF Securities' managing director Fred Jheon, who helped announce the company's listing of GLTR, a precious metals basket ETF that contains shares of gold, silver, platinum and palladium, on the New York Stock Exchange on Tuesday. ETF Securities launched GLTR in October and launched ETFs for Palladium (PALL) and Platinum (PPLT) earlier this year.

Jheon said his company's newest product was developed because of investor demand for investments that provide exposure to all four precious metals. While the company offers ETFs that track each of the four precious metals separately, GLTR "gives investors access all four precious metals in one trade that is backed by the physical metal itself," he said.

Gaining access to four precious metals in one security can lower commission and trading costs – investors avoid paying commissions on four different trades of ETFs. The exposure to precious metals also acts as a hedge against the falling value of the U.S. dollar which continues to be under pressure as nations adjust policies in an effort to jump start their economies. Additionally, the precious metals ETFs add diversification to a portfolio through commodities, an asset class many investors fail to include in their portfolios as a way to lower overall risk.

But with next year's forecasts on precious metals all positive, any ETF in that category is likely to benefit investors. The most bullish recent precious metals price forecasts for 2011 have gold going as high as $1,600 an ounce, platinum as high as $2,000, palladium in the $700 range and silver reaching as high as $27 an ounce. Although the majority of forecasters predicted more modest price increases for the metals, all forecasts see sizable gains in precious metals next year.