Gold returns have substantially outperformed equities on a three-year, five-year and ten-year horizon, according to ETFS. Historically, the volatility of gold returns has been lower than S&P 500 volatility. And the metal has had a zero or slightly negative correlation to equities, providing strong portfolio diversification benefits.
In addition, gold has tended to have a negative correlation to the U.S. dollar over longer periods of time. During periods when inflation has risen sharply, gold has performed well. Strong demand for the metal also exists during deflationary periods as a hedge against deteriorating government finances and the increased risk of currency debasement and systemic financial failures.
Silver: Industrial uses of this metal (in electrical contacts and conductors, in mirrors, and as a catalyst of chemical reactions) account for some 53% of all global silver demand, compared with 12% for gold. This owes to silver's several exceptional properties, including its strength, sensitivity to light, its malleability and ductility, its electrical and thermal conductivity, its reflectivity and its ability to endure extreme temperature changes. Jewelry and silverware account for 26% of demand, photography 13% and investment 8%.
Thanks to this multifaceted profile, silver has not only store-of-value properties similar to gold, but also investment properties similar to those of an industrial metal. As a result, it has often performed well relative to more cyclical assets during periods of high inflation and/or financial dislocation. It also has tended to perform strongly when the industrial cycle is improving (as in the second and third quarters of 2009).
Cornering The Market
ETF Securities' goal is to be the biggest issuer of commodity ETFs in the U.S. by number of products by the end of 2010, says Rhind. The firm will offer a lot more commodity ETFs this year, including other sectors such as agriculture, industrial metals and energy, he says.
"We want investors who are interested in commodities to come to ETF Securities as a center of excellence, where they can buy whatever exposures they want from one company," Rhind says.