HardAssetsInvestor

Written by Julian Murdoch  |

October 26, 2010

Is The New Precious Metals ETF Worth Buying?

Details

Do You Need A Little GLTR?

Back to GLTR. So is it worth the metal it's based on?

First off, you need to look at why you want to invest in these metals. After all, the four metals are fairly well correlated, so holding all four won't give you much in diversification:

Correlation of daily spot returns over 12 months, ending Oct. 22, 2010

Many investors choose to invest in silver, platinum and palladium because they believe these metals are undervalued compared to gold, and they want to play off that relationship. But by tossing gold into the basket, large gains (or losses) in the other metals may be tempered by even the smallest movements in the gold behemoth.

That's not even counting the fact that ounce for ounce, there isn't nearly as much platinum or palladium in the basket—meaning GLTR doesn't exactly offer much in the way of exposure to these metals, comparatively.

Besides, many silver, platinum and palladium investors want to work these metals' volatility, hoping to buy low and sell high on any given transaction. But going with a basket of metals just doesn't allow you to capitalize on the metals' underlying movements in the same way as playing the individual metals could.

Now, if you're looking to buy all four metals just to have them, then this may be an ideal product. But if you're driven by other motivations—for example, you think palladium still has a way to go before topping—then you may be better served by purchasing each metal individually, whether in physical bullion or via a physically backed ETF, like SIVR, PPLT or PALL.

But one thing all metals investors should keep their eyes on is how large GLTR grows. Each 50,000-share creation unit of GLTR is backed by 1,500 ounces of gold, 55,000 ounces of silver, 200 ounces of platinum and 300 ounces of palladium. While as of now, those amounts comprise just a small part of demand for each of the underlying metals, should the fund take off, it could theoretically become a much larger demand driver—and even influence prices down the road.

If you liked this article, then check out:

• Episode 138: Getting Physical With New Metals ETFs
• Chart Of The Week: A Silver Slipper
• David Morgan: Silver Overdone Now, But Headed Higher In 2011