All That GLTR: Precious Metals ETF May Shine

Takeaways

• Every sell-off in gold has been a buying opportunity since 1999 
• Silver turbocharges the price action in gold 
• Platinum group metals are in the eye of the Russian storm 
• Three reasons to hold the metals 
• GLTR holds the four precious metals 

Precious metals prices are down, but certainly not out. 

The rationale for owning gold, silver, platinum and palladium is as compelling as ever, and the abrdn Physical Precious Metals Basket Shares ETF (GLTR), which holds physical bullion, helps make the case. 

The fund’s 10% decline this year reflects how rising interest rates and a strong dollar have hurt investments in gold, silver and platinum group metals. Higher interest rates cause capital to flow from stocks and commodities to fixed income assets as yields climb. They also increase the cost of carrying long positions in the metals.  

The U.S. dollar is the world’s reserve currency and the benchmark pricing mechanism for most raw materials, including precious metals. As the dollar’s value rises, the metals become more expensive in other currency terms, weighing on prices because of the elasticity of demand.  

Repeat Buying Opportunities 

Gold determines the value of GLTR, since more than half of the ETF’s assets are in gold bullion. Whenever gold has corrected this century, the drop has been followed by a retracing to new and higher highs.

Source: Barchart 

While nearby COMEX gold futures corrected from a record $2072 high in March 2022 to the $1660 level, the long-term chart highlights that each correction this century has been a buying opportunity leading to higher highs. Gold has made higher lows and higher highs since the 1999 $252.50 low.  

Silver Turbocharges Gold’s Price Action 

Gold attracts investors who hold the metal for value, while silver tends to attract more speculative market participants because of its penchant for volatility. Quarterly gold historical volatility was at the 12% level on Oct. 25, with the measure in silver at the 27% level.  

Silver offers market participants wider price swings on a percentage basis. Therefore, trend-following traders and investors tend to flock to the silver market when trends develop. GLTR holds just below 28% of its assets in silver bullion.  

Platinum Group Metals in the Eye of the Russian Storm 

Platinum group metals include platinum, palladium, rhodium, iridium, osmium and ruthenium. Platinum and palladium are the most liquid of the PGMs, and the only group members that trade in the futures arena.  

Most PGMs come from primary production in South Africa and Russia, where they are a byproduct of nickel output in the Norilsk region of Siberia. The war in Ukraine has put platinum and palladium in the market’s crosshairs—sanctions on Russia and Russian retaliation have sparked increasing supply concerns. GLTR holds just below 16% of its assets in palladium bullion and a little over 4% in platinum bullion.  

Three Reasons to Hold 

Precious metals are rare, and while gold and silver are mainly financial assets with some industrial applications, the PGMs are mostly industrial metals with some limited financial applications.  

Since GLTR holds nearly 80% of its assets in gold and silver, it is mainly a financial ETF product. At least three factors make precious metals compelling investments in the current environment: 

• Gold and silver were means of exchange or hard currency for thousands of years, long before dollars, euros, pounds, yen or other fiat currencies were floating around in the worldwide financial system. Worldwide central banks continue to hold gold as an integral part of foreign exchange reserves.  
• Precious metals’ supplies are limited. While governments can issue fiat currencies and increase the fiat money supply, the only way to increase precious metals supplies is to extract more from the earth. 

• Geopolitical bifurcation and tensions between the nuclear powers erode the full faith and credit in governments that issue legal tender. Precious metals tend to increase in value when inflation grips the global financial landscape and when confidence in governments declines.  

Rising interest rates and a strong U.S. dollar have pushed gold, silver, platinum and palladium prices lower. Still, the global geopolitical and economic landscapes continue to provide fundamental support for the metals.  

GLTR Holds the Four Precious Metals 

The most direct route for investment in precious metals is via the physical market for bars and coins, which requires investors to store and insure the metals. At the $80.20 level on Oct. 25, GLTR had $925.70 million in assets under management, and invests 100% of its holdings in physical gold, silver, palladium and platinum. GLTR charges a 0.60% expense ratio.

Source: ETF.com 

The chart shows GLTR closed 2021 at $89.45 and has declined by 10% to $80.20 so far in 2022. Gold’s pattern of higher lows and higher highs this century and its role in the global financial system suggests the current price weakness is an excellent time to add GLTR to portfolios as a hedge against global fiat currency weakness and turmoil on the geopolitical landscape.