The U.S. dollar also has an effect on metals. Any perceived weakness in the greenback can push metal prices upward, since they become cheaper for U.S. investors. Precious metals such as silver and gold can also be effective hedges against inflation, which sparks a rush of buying whenever investors believe such a scenario is likely.
Perceived weakness or instability be it political or economic, in a country or region will usually send commodity traders to precious metals since the shiny substances are a good store of value in uncertain times, as well.
The Ins and Outs of Metal ETFs
Potential investors may want to go over the various precious metals ETFs that are available.
Equities. Equity-based metal ETFs are funds that hold mining companies and other companies involved in the production of various metals. There are broad metals ETFs such as SPDR S&P Metals & Mining (NYSEArca: XME), as well as single-metal funds such as Market Vectors Gold Miners (NYSEArca: GDX) and Global X Lithium (NYSEArca: LIT). The performance of these companies are not always correlated to their underlying commodity, but when prices of their commodities are high, profit margins generally improve. For some of the more uncommon metals, such as lithium, equity-based commodity ETFs may be the only way to gain exposure to these assets in an ETF.
Physical. Physical ETFs hold the actual physical commodity, and owners of the ETF own an interest in a fractional amount of the underlying metal. The small retail investor may consider physical ETFs over holding the physical commodity because of costs associated with storage of the commodity. More physically-backed metals funds have made an appearance in recent years, including SPDR Gold Shares (NYSEArca: GLD), iShares Silver Trust (NYSEArca: SLV) and ETFS Physical Platinum (NYSEArca: PPLT).
Futures-based. Most metals, as are most commodities, are traded on futures exchanges. A future is a promise to buy, or sell, a commodity for a set price at a set date in the near future. A majority of the future contracts traded on the exchange floor are settled or swapped for cash before the expiration date. Before ETFs came into existence, futures generally weren’t accessible for small investors. Examples of futures-based metals ETFs include PowerShares DB Silver (NYSEArca: DBS) and PowerShares DB Base Metals (NYSEArca: DBB).
You can find all of the metals ETFs in the ETF Analyzer. To research any fund by holdings, performance and more, click on the ticker to be taken to the ETF Resume page. Since metal prices can change suddenly as a result of demand shifts, consider setting up alerts to be notified of a trading opportunity.