Precious Metal ETFs: The Pros and Cons

When considering multiple investment options you need to know more than just the potential benefits of each investment. Savvy investors really dig in when it comes to research because they want to know the good, the bad and the ugly aspects of each investment possibility.

We’ve done the legwork for you below by listing the positive and negative attributes of precious metal exchange-traded funds, commonly known as ETFs.

The Good

One benefit of ETF investments is that they are extremely convenient. You can buy or sell ETFs with the click of a button or via a quick call to your stockbroker. You can invest as little money as you like into the ETF market, and there is nothing to store as is the case when buying physical gold and silver.

The Bad

ETFs are extremely convenient but they are not without potential downsides. ETFs are, for all intents and purposes, stocks. This means that if the economy were to crash overnight you would have nothing solid to fall back on as you would if you invested in physical gold and silver. Additionally, ETF companies like ALPS Sprott Junior Gold Miners and Global X Silver Miners have overhead that they need to account for when valuating prices.

This means that you might not always see 100% of gold or silver’s gains because the ETF company itself needs to pay employees, advertising costs, lease fees for infrastructure, etc. Gold and silver ETFs are supposed to track spot prices but because ETFs are operated by companies sometimes a portion of each dollar is directed toward overhead instead of precious metals.

The Ugly

One of the greatest fears of ETF investors has to do with the audits of ETF companies’ precious metal holdings. There hasn’t been an ETF Armageddon yet, but critics of exchange-traded funds contend that the gold and silver holdings owned by ETF companies aren’t audited regularly or accurately.

Things could get ugly if an audit revealed that there wasn’t enough gold or silver to back up the value of all of the shares currently owned by individual investors. In the event that an audit detected irregularities, ETF values could plummet. It’s highly unlikely that large ETF companies would allow such a catastrophe to take place, but this is a remote possibility of which ETF investors should be aware.

The Verdict

If there was such a thing as a “perfect” investment then everyone would be rich. The fact of the matter is, though, that all investments have advantages and drawbacks. We hope this candid discussion of the good, the bad and the ugly surrounding precious metal ETFs will aid you in making a wise investment decision.

Many investors have been successful with exchange-traded funds, and we believe that you can also see profits if you time your investment correctly and accept the fact that an ETF investment means taking on certain risks. If this is acceptable to you then your next step will be comparing multiple ETF companies to find the one that will best suit your needs.