There are a few different ways to invest in the metals and mining sector with exchange-traded funds (ETFs). Some mining ETFs invest in companies involved in the exploration, extraction, and distribution of metals and other commodities.
Metals ETFs invest in metals directly, by either owning the physical commodity or futures contracts. ETFs that own the commodity outright use invested funds to buy the target metal and store it in a vault. Alternatively, the ETF could hold futures contracts, which do not require delivery of the physical metal.
Metals ETFs can track a single metal, like gold, or a basket of either precious metals or industrial metals. Precious metals are rare earth metals of high value such as gold, silver, platinum, and palladium. Though they can have industrial uses, precious metals are often acquired as stores of value rather than as materials. Industrial (or base) metals are plentiful, non-ferrous metals like copper, nickel, aluminum, zinc, and lead. They are far more common than precious metals and derive their value from their usefulness in manufacturing and finished goods.
Below we look at some of the largest ETFs offering targeted exposure to metals and mining.
Key Takeaways
- ETFs in the metals and mining sector can pursue strategies by either investing directly in metals, through physical holdings or futures contracts, or by investing in companies involved in metal mining and production.
- Precious metals like gold, silver, platinum, and palladium are often used as stores of value, while base metals like copper, nickel, aluminum, zinc, and lead are valued for their industrial applications.
- The SPDR Gold Trust and iShares Silver Trust represent prominent ETFs focused on physical gold and silver, respectively, while the Global X Silver Miners ETF and VanEck Vectors Gold Miners ETF focus on mining companies.
- Certain ETFs offer leveraged or inverse exposure, providing opportunities to amplify or hedge against commodity price movements, such as the ProShares Ultra Gold and ProShares UltraShort Gold ETFs.
- Base metals ETFs like the Invesco DB Base Metals ETF and copper-focused ETFs, such as the iPath DJ-UBS Copper SubTR ETN, allow investors to focus on the industrial metal segment of this market.
Investing in Precious Metals ETFs
A fund that invests in a basket of several precious metals is the ETF Physical PM Basket, which aims to replicate the return of physical gold, silver, platinum and palladium.
Gold ETFs: Investment Options and Strategies
The SPDR Gold Trust invests in physical gold and hosts returns that have historically matched the precious metal closely. The VanEck Vectors Gold Miners ETF invests in gold mining companies and uses the NYSE Arca Gold Miners Index as a benchmark.
Also available and commonly traded are more exotic ETFs that offer returns leveraged to the price of physical gold or inverse to the price of gold. The ProShares Ultra Gold, which seeks to double the return of bullion and the ProShares UltraShort Gold, which seeks to provide double inverse bullion performance, are examples of types of these sophisticated ETFs.
Exploring Silver ETFs: Funds and Performance
The largest and most popular silver ETF is the iShares Silver Trust, which holds the objective of matching the return of physical silver. The Global X Silver Miners ETF invests in silver mining companies and seeks to meet or exceed the returns of the Solactive Global Silver Miners Index.
A short silver ETF option exists with the ProShares UltraShort Silver. This ETF seeks to double the inverse performance of the price of physical silver.
Platinum Investment Through ETFs
An ETF that aims to match returns offered by investing in physical platinum is the ETF Physical Platinum. An ETF that invests in the shares of platinum mining companies is First Trust ISE Global Platinum ETF, which uses the ISE Global Platinum Index as a benchmark.
Investing in Palladium: Trusts and ETFs
A closely related trust, rather than a fund, with returns linked to investing in physical palladium is offered by the Physical Palladium Trust. The trust seeks to match the performance of the price of physical palladium.
Base Metals ETFs: Investment Insights
A popular base metals ETF with assets of over $487 million is the Invesco DB Base Metals ETF, as of Dec. 31, 2021. The fund tracks the performance of the Deutsche Bank Liquid Commodity Index-Optimum Yield Industrial Metals Excess Return.
Understanding Copper ETF Options
Although it is technically a note and not a fund, the iPath DJ-UBS Copper SubTR ETN aims to match the performance of an un-leveraged futures position in copper and is the largest and most actively traded copper ETF.
There are two copper mining ETFs that are popular with investors: the Global X Copper Miners ETF, which seeks to replicate the performance of the Solactive Global Copper Miners Index, and the First Trust ISE Global Copper ETF, which tracks the ISE Global Copper Index.
Nickel ETFs: Exploring Investment Vehicles
The most commonly traded pure Nickel ETF is the iPath DJ-UBS Nickel SubTR ETN. Technically, this is a note and not an ETF. It seeks to track the performance of an unleveraged position in nickel futures.
Steel Industry ETFs: Tracking Market Performance
The Market Vectors Steel ETF (SLX) is a steel industry ETF that seeks to replicate the performance of the NYSE Arca Steel Index.