Mike McGlone, director of research for ETF Securities, talks up a bullish outlook on precious metals and the importance of incorporating the ‘big four’ into a basket.
With three-quarters of 2013 behind us, looking back at the year brings one question to the forefront for the fourth quarter: What’s in store for precious metals? The big four—gold, silver, platinum and palladium—can be fan favorite or portfolio nightmare. Mike McGlone, U.S. director of research for ETF Securities, shared his outlook for the last quarter of the year with contributing writer Hannah Tool, dipping into how the international landscape will play into the metals movement, and why auto sales are so important to industrial precious metals.
HardAssetsInvestor: Looking at the four big precious metals—gold, silver, platinum and palladium—what is your outlook heading into the fourth quarter of 2013?
Mike McGlone: We have been bullish and remain bullish. I think it’s this question of which ones we’re more bullish on, and for which reasons.
You can separate out gold and silver as the investment-oriented and sometimes store-value types. Platinum and palladium are a little more of the industrial-sensitive precious metals. But we remain bullish on all four. We don’t really put targets on things, but we still think they offer pretty attractive value.
HAI: What percentage do you advise in terms of precious metals allocation to a portfolio?
McGlone: Historically, we look at between 5 to 10 percent allocations for the precious metals and for diversification of portfolios, but that’s obviously dependent on the individual preferences.
HAI: All of your U.S.-listed ETFs are physically backed, right?
HAI: When it comes to precious metals, does a physically backed portfolio perform better than a futures-based portfolio?
McGlone: You cannot get more transparent access to platinum, palladium, silver or gold than in a physically backed ETF.
When you have a futures-based portfolio, you have many layers of exposure before you're getting to the actual metal or the actual commodity. It’s a derivative. So you're not getting direct exposure to that actual commodity entity. Because of that, you're going to have a lot of nuances.
With any physically backed product, the only difference between performance of that product and the metal is the expense ratio. You don’t have to deal with issues of backwardation, contango and the roll return, which, in futures, not only is there a roll return, there’s an expense to that roll return. You just don’t have to deal with all the issues of ownership.
HAI: Are the ETF Securities physically backed ETFs redeemable for physical bullion?
McGlone: Yes. Our gold ETF, SGOL, is redeemable at 50,000 shares and for silver fund, it’s 100,000 shares.
HAI: Looking forward one, three or even five years, what do you think will be some key factors that will roll into the upward or downward fluctuations in gold pricing?
McGlone: There’s one key factor that I don’t think a lot of people are really speaking about yet: The light at the end of the tunnel is tightening at the Fed.
Something that people have to think about and look at is that, generally, the concept of Fed restraint and tightening is considered bad for gold. We thought so, too, until we went and checked the history. Historically, the price of gold has actually performed quite well during Fed tightening cycles.