Best precious metals ETFs to buy in Q1

Precious metals aren’t just attractive to look at – in a properly balanced portfolio they can also be a useful investment tool. Investing in the sector has long been a way to hedge against the ravages of inflation or provide a safe haven in tough economic times. This is because certain precious metals, such as gold, tend to perform well in periods of crisis and uncertainty.

While some investors buy gold futures, shares or physical gold, buying exchanged-traded funds (ETFs) and exchange-traded commodities (ETCs) can be a useful way for investors to gain exposure to gold and other precious metals without owning the physical asset themselves. The gold price has put in a strong performance in the past few years and is currently touching five-year highs. However, other precious metals are trading at lower levels, such as silver and platinum, and may have further to climb, although they can be more vulnerable to economic shocks than gold.

Here are three exchanged-traded funds we think could be an option for investors looking to protect their portfolios from inflation. It’s worth remembering, though, that precious metals ETFs can be high risk. Only invest money you can afford to do without.

Invesco Physical Gold ETC

The gold price has performed strongly over the past year, touching highs of $1,940 this month. However, with the likelihood of recession in the UK and US, inflation and the war in the Ukraine continuing, a dip in the commodity could offer a buying opportunity.

The Invesco Physical Gold exchange-traded commodity seeks to replicate the spot gold price after charges. It is backed by physical gold bullion, held in the London vaults of JP Morgan Chase Bank. Its benchmark is the London Bullion Market Association gold price, which is determined at 3pm GMT each day. Launched in 2009, the fund has generated a cumulative return of 38.4% over five years, 18.5% over three years and is down 0.54% over one year. The fixed fee is 0.12% and the fund, domiciled in Ireland, is ISA, SIPP and UCITS eligible.

iShares Silver Trust ETF

With the price of gold having risen so much over the past year due to concerns about the worldwide economy and the uncertainty created by Russia’s war in the Ukraine, it’s worth investors considering other precious metals too. Silver is one such option which in the past has been correlated with the gold price, although in recent years the price has tended to diverge from that of gold. Indeed, the silver price has yet to catch up with gold’s strong performance.

However, investors should be aware that the precious metal tends to be much more volatile because of the more common use of the metal in industrial applications compared to gold. This makes the precious metal more sensitive to the economic cycle. Silver is often used in industrial fabrications and electronics, as well as in jewellery making.

The iShares Silver Trust ETF, run by BlackRock, seeks to provide investors with exposure to the silver price on a cost-effective basis via an investment portfolio. As such, the trust, which launched in 2006, holds silver bullion – so is therefore backed by physical silver - and aims to replicate the silver price, minus its expenses and liabilities. It takes as its benchmark the London Bullion Market Association (LBMA) silver price. On a cumulative basis, the fund, which was worth $11 billion in December, has delivered a return of 3.2% over one year, 30.75% over three years and 38.48% over five years. The expense ratio is 0.5%.

WisdomTree Physical Precious Metals UCITS ETF

Other precious metals, such as palladium and platinum, are also worth a look. These metals are frequently used in industry applications, such as the car and aerospace industries as well as electronics. However, they can be more vulnerable to fluctuations in the economic cycle than gold. The price of palladium has been volatile and performed poorly over the past three years due to the semiconductor chip shortage and hawkish economic outlook. The price of platinum, however, has remained more robust over the past year. One way to gain exposure to these metals is via WisdomTree’s exchange-traded commodity fund. The fund aims to deliver returns equivalent to the movement of physical precious metals spot prices after fees.

It is backed by physical precious metal bars, such as palladium and platinum, which are held by the fund’s custodian HSBC in London. Only those bars which conform to London Bullion Market Association's (LBMA) and London Platinum and Palladium Association's (LPPM) rules for good delivery are accepted by the fund. Meanwhile, the ETF is also UCITS, ISA and SIPP eligible. The fund has delivered returns of 3.7% over three years and -1.1% over one year, while the expense ratio is 0.44%.

Precious metals ETFs can offer a useful hedge against inflation and a safe haven from economic woes as part of a balanced investment portfolio. However, it’s worth remembering that the price of gold, silver, palladium and other precious metals can be volatile. If the economy improves, the gold price may fall. Only invest money you can afford to lose.

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