Commodity exchange traded funds (ETFs) have attracted a rabid investor following in a relatively short period of time. To play in the commodity sandbox before ETFs came along, you needed risk tolerance and capital. Today, you just need desire.

Last week, we discussed physically backed ETFs, which are just as the name implies: each share is backed by a physical product. Right now, physically backed ETFs only give exposure to precious metals. You won’t find an ETF backed by barrels of oil or livestock. [4 Types of Commodity ETFs.]

Physically backed ETFs have a special appeal to smaller investors who either lack the space for storage, or the inclination to hunt down and pay for storage themselves. In ETFs backed by physical metals, all you need to do is show up and buy a share. The rest is taken care of for you. [Contango and What You Can Do About It.]

These ETFs tend to correlate more closely to the spot price than commodity funds that hold equities or futures. The taxes are a bit different, too: profits in bullion-based ETFs are taxed at 28% (but consult your personal tax professional for specific advice). [ETFs and Taxes: What You Should Know.]

Physically backed commodity ETFs also enjoy the other benefits of ETFs, including cost-efficiency, tax efficiency and transparency (the bullion holdings in these funds are subject to regular audits and the results are posted on the ETF provider’s website).

For more stories about commodity ETFs, visit our commodity ETFs category.

  • SPDR Gold Trust (NYSEArca: GLD)
  • ETFS Physical Platinum (NYSEArca: PPLT)
  • iShare COMEX Gold Trust (NYSEArca: IAU)
  • ETFS Physical Palladium (NYSEArca: PALL)
  • iShares Silver Trust (NYSEArca: SLV)
  • ETFS Silver Shares (NYSEArca: SIVR)
  • ETFS Gold Shares (NYSEArca: SGOL)

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.