Precious metals exchange traded funds have experienced a wild swing over the past few months, but strong fundamentals could help the asset class maintain its forward momentum.
ETF Trends publisher Tom Lydon spoke with Steven Dunn, U.S. head of Distribution at ETF Securities, at the Inside ETFs conference that ran Jan. 22-25, 2017 to talk about the precious metals market and differing characteristics that each of the metals show.
“There was a little bit of a give back post election… but we’ve already started to see sort of a new rally in 2017,” Dunn said. “You have some really good fundamental reason behind sort of why metals in 2017.”
For instance, Dunn pointed to the rising inflation. Precious metals traditionally do well in inflationary environments as the hard asset acts as a better store of wealth, compared to the weakened currencies.
“The underlying fundamentals for the metals across the the board are really good,” Dunn said.
Moreover, some precious metals enjoy increased industrial demand, along with their safe-haven status. For example, palladium has climbed this year due to a combination of auto sales or increased industrial usage and the extended low-rate environment, which has been supportive of metals group.
The increasing demand, notably high demand in emerging markets where there is a growing middle-income group, will continue to support the precious metals group.
“With a lot of these metals, it comes down to a really easy concept: a lot of demand and lack of supply,” Dunn said. “In that type of situation, you have sort of a rise in prices, and that’s what you see in things like the platinum and palladium world.”
Many of these precious metals are experiencing a net deficit where there is not as much supply being extracted from the earth.
Investors can look to number of precious metals through physically backed ETFs as a way to diversify a traditional stock and portfolio, including ETFS Physical Swiss Gold Shares (NYSEArca: SGOL), ETFS Physical Silver Shares (NYSEArca: SIVR), ETFS Physical Platinum Shares (NYSEArca: PPLT) and ETFS Physical Palladium Shares (NYSEArca: PALL). ETF investors can also use the ETFS Physical Precious Metals Basket Shares (NYSEArca: GLTR) as a catch-all of all four precious metals.