The past several years have been trying times for the precious metals complex. Plunging prices for gold, silver and platinum from 2013 through 2015 caused those metals to lose their sheen and investors to punish the exchange-traded products that track them. Platinum, whose fortunes rise and fall with the automobile sector, held up better until 2015. Last year saw improved performance across the board through the first half of the year, only to see the rally lose steam in the second half—hampered in part by a post-election sell off.
But precious metals on average are gleaming so far in 2017. Steve Dunn, executive director and head of the U.S. business at ETF Securities, recently talked with ETFA about the fundamentals behind precious metals. In 2003, his firm developed the world’s first gold exchange-traded product. Its lineup of U.S.-listed exchange-traded funds comprise the ETFS Physical Swiss Gold Shares (SGOL), ETFS Physical Silver Shares (SIVR), ETFS Physical Palladium Shares (PALL), ETFS Physical Platinum Shares (PPLT) and ETFS Physical Precious Metals Basket Shares (GLTR) funds.
ETF Securities plans to expand its product lineup with the expected first-quarter launch of a suite of six actively managed, commodities-based ETFs. Below is the excerpted conversation with Steve Dunn.
ETFA: What’s driving the solid showing among precious metals so far this year?
Dunn: The fundamental case for commodities is strong right now. Have things run too fast? There’s always a concern that things get ahead of themselves. For example, palladium has been leading the way most of this year, and palladium has a strong link to auto sales, which have been strong in places such as China. As long as strong demand remains on the auto side, and palladium is the main source material for catalytic converters, then that creates demand for palladium.
Palladium and platinum are the two primary metals used in the auto industry. Palladium is used in gas engines; platinum is used more in diesel engines. Platinum has more uses than palladium, but continued strength in the auto market would help both metals.
ETFA: Gold dominates the headlines regarding metals, with silver rarely in the spotlight. What’s the fundamental case for silver?
Dunn: From a fundamental standpoint, silver is probably the most attractive of the metals because it has dual uses: it’s used both in jewelry and for industrial applications such as electronics and solar power. It’s also showing up in athletic wear because it can absorb smells from sweating. And it’s also used in the solar industry, so if solar plays a larger role in the U.S., silver is a natural benefactor of that.
Overall, they [precious metals] are often used more as tactical components [in a portfolio]. Each of the metals represent a theme, so you’re not necessarily investing in a particular metal versus investing in what that theme is.
ETFA: Gold prices seem to go up and down like a yo-yo. Are some market conditions better than others to buy gold?