With gold being the exception, precious metals and the related exchange traded funds are languishing. Running the numbers on the four largest precious metals ETFs, which address gold, palladium, platinum and silver, only the SPDR Gold Shares (NYSEARCA:GLD) is higher on a year-to-date basis.
Interestingly, three of those four precious metals ETFs are beating the S&P 500 this year. In theory, the performances of precious metals stocks and funds should be better. The world is awash in easy monetary policies, which is depressing interest rates. As just one example, gold is more appealing when interest rates decline because bullion doesn’t pay coupons or dividends.
Still, there remain strong cases to consider precious metals ETFs, including the following:
- SPDR Gold MiniShares (NYSEARCA:GLDM)
- Aberdeen Standard Physical Palladium Shares ETF (NYSEARCA:PALL)
- Aberdeen Standard Physical Platinum Shares (NYSEARCA:PPLT)
SPDR Gold MiniShares (GLDM)
Expense ratio: 0.18% per year, or $18 on a $10,000 investment
The SPDR Gold MiniShares is the cost-effective alternative to the aforementioned GLD with GLDM, sporting an expense ratio that’s less than half that of its older stablemate. While GLD is one of this year’s most popular ETFs, GLDM is no shrinking violet on that front. It’s the place to be for gold investors looking to save some dough on fees.
GLDM is up nearly 26% year-to-date as gold is being boosted by the aforementioned low global interest rates, safe-haven demand, and rampant buying central banks. Good news for investors considering precious metals ETFs today: a strong case can be made that this gold bull market is still in the early innings.
“While gold has broadly tracked rising central bank balance sheet levels over the past two decades, gold investors should focus on the impact these debt levels may have alongside rising deficits and low rate policies on the US dollar (USD), and in turn the potential advantage for gold,” said State Street Global Advisors in a recent note.
Then there’s the matter of all that quantitative easing causing inflation, which is historically rewarding for gold prices.
“Inflation may emerge in the form of currency devaluation, particularly with the US dollar, as a result of continued accommodative policies,” notes State Street.
A weaker dollar should be good news for gold because, like other commodities, bullion is denominated in the U.S. currency.
Aberdeen Standard Physical Palladium Shares ETF (PALL)
Expense ratio: 0.60% per year
For investors that can handle the added volatility, the Aberdeen Standard Physical Palladium Shares ETF is the precious metals ETF to consider. Over the past three years, the palladium fund is higher by 117%, meaning its beating the S&P 500 by a margin of almost 4-to-1.
Palladium is a primary ingredient in building catalytic converters in automobiles manufactured in the U.S. and China. As a result, PALL proved vulnerable to the novel coronavirus market meltdown. The palladium was roughly cut in half and it still labors almost 35% below its 52-week high. Conversely, if the economy rebounds and auto sales follow suit, PALL is a predictable beneficiary.
In addition to being responsive to the aforementioned central bank and inflationary factors, PALL has another card to play. Global palladium demand consistently outstrips supply. That and the history of this precious metal shows that at anytime, miners in South Africa, the second-largest producer of the metal, can go on strike, sending prices higher.
Aberdeen Standard Physical Platinum Shares (PPLT)
Expense ratio: 0.60% per year
There was a time when platinum was the most valuable precious metal, but the metal hasn’t worn that crown in awhile. In fact, both gold and palladium are more valuable than platinum on a per ounce basis. On the bright side for the Aberdeen Standard Physical Platinum Shares, platinum is now viewed as a value play relative to its aforementioned rivals.
Some analysts are tepid on platinum due in part to slack physical demand.
“Platinum should hardly be able to reduce its undervaluation significantly due to the still unfavorable fundamental data,” said Commerzbank. “At best, we expect platinum to perform in line with gold.”
PPLT could offer some upside in the back half of the year, but in order for that to happen, European automobile demand needs to bounce back along with the global economy. If the best platinum can do is perform inline with gold, gold ETFs are the better option because platinum is the more volatile of the two precious metals.
Todd Shriber has been an InvestorPlace contributor since 2014. As of this writing, he did not hold a position in any of the aforementioned securities.