What are Precious Metals ETFs?

Posted - June 7, 2022
What are Precious Metals ETFs?

Investing in Precious Metals with ETFs

Precious metals such as gold, silver, platinum and even palladium are clearly valuable investments for those watching the charts. Though, many will contest that gold and silver are simply money. Whatever your perspective, most investors know that precious metals hedge well against potential inflation, economic downturns or the combination – stagflation. And as the gold market becomes more lucrative, it’s only too easy to suggest that its value will increase over time, as history easily confirms.

But how would you like to invest in precious metals without the worry of having to own or store them, hidden away or preserved for the sake of maintaining its overall value? Well, you can. It’s called an ETF.

What are Precious Metals ETFs?

ETF stands for Exchange-traded funds. ETFs aren’t limited to precious metals, but these will be our focus. Here, silver and gold trade in a similar manner to stocks. Your investment will yield a contract that is backed by gold or your precious metal of choice, even the aforementioned platinum or palladium. So, if you invest in a precious metals ETF, you have the value of that metal without having to own or preserve the physical investment in any form. 

Investing in an ETF is very much akin to investing in the stock market. When buying company stock, you actually own a percentage of that company’s value without actually owning a tangible product to sell. You are simply rewarded with a contract allowing you to sell/trade in the future based on the value of the stock at that time. And that’s an ETF in a nutshell.

The Benefits of Precious Metal ETFs

There are a variety of benefits as it comes to working with precious metals ETFs. A quick perk here is that you don’t have to worry about acquiring quick nicks or blemishes due to mishandling or overhandling which, of course, affects the overall value of the precious metal. As well, you don’t face the risk of losing the investment to hazards like theft or simply misplacing a coin or bit of bullion. 

And with precious metals ETFs you can trade or sell your investment quickly, in real time. If you owned actual silver or gold, you would have to take a few extra steps to sell or otherwise trade your physical metals.  What is the main benefit of a precious metals ETF? In a word: convenience.

The Disadvantages of Precious Metals ETFs

“If you don’t hold it, you don’t own it.” This is a popular phrase that summarizes the biggest disadvantage of a precious metals ETF – counterparty risk. Without getting into the weeds of derivatives and margin debt that have an effect on the “paper” price, or traded price, of precious metals, your ETF position in precious metals is not one where you actually own the underlying asset. The underlying asset is not allocated to you and you have no option for redemption of this asset nor can you be 100% certain it actually exists. The gold is held by a “trust” after all. You can pull out the same currency you put in at the currently traded value of that underlying asset.

One of the inherent benefits of investing in precious metals is the ability to eliminate counterparty risk and have a physical asset as insurance to market destabilization or worse. This is forfeited with a precious metals ETF.

In Summation: What are Precious Metals ETFs?

As explained by ssga.com, precious metals ETFs offer a “high degree of flexibility, transparency, and accessibility to the precious metals market with the cost-effective liquidity benefits of an ETF wrapper”. Gold, silver, platinum and palladium are all available for quick purchase or sell as precious metals ETFs. In fact, according to the same source, Gold ETFs ‘have grown to record levels in terms of popularity since 2004 when the first physically backed gold ETF was introduced’.

ETFs provide the convenience of quick sell/buy flashpoints and make for a fast and easy investment into precious metals during economic downturns. Gold and silver have a clear and proven track record in both good times and bad and now it’s never been easier to step into the investment game and click away.

If that gives you pause or if you’d otherwise prefer the assurance of taking physical ownership of precious metals… we don’t blame you.  

Of course, as always, due diligence wins the day. No matter your investment choice regarding precious metals, allow for some proper research to guide you. And experts at Hero Bullion are just a click or call away. 

About The Author

Follow @herobullion

Hero Bullion provides an environment that is informative and safe for those looking to own physical gold and silver bullion as an investment. We love helping folks at all stages throughout their bullion journey making progress towards acheiving their financial goals. Whether you are a seasoned bullion investor or brand new to the game of gold and silver bullion ownership, we're here to help and serve you in any way we can.