Precious metals are on a tear at the moment, with gold the standout performer, rising hitting a new all-time high above $5300/oz as investors look for shelter from global volatility and geopolitical risk. Platinum group metals (PGMs) are also benefiting from strong trends driving demand, like the transition to green energy and electric vehicles.
As investors scramble for exposure to get their share of the precious metals market, many are asking, what are the best investment options to include precious metals in my self-directed portfolio?
There are various ways a DIY investor can incorporate precious metals exposure into their portfolio. These options include:
- Physical ownership (bullion coins/bars)
- Mining stocks
- Exchange-traded funds (ETFs)
- Streaming/royalty companies
- Futures contracts
While there is an undeniable psychological comfort in holding a physical gold coin or Kruger Rand, the practicalities of modern investing increasingly favour Precious Metals exchange-traded funds (ETFs), which offer high liquidity and easier diversification.
Buy and sell
The greatest advantage of a Precious Metals ETF is its liquidity. A DIY investor can buy or sell their position with a single click during market hours. That means your capital is back in your account instantly at the prevailing market price.
That’s almost impossible to do with the physical asset. While there are numerous gold traders around, selling bullion or Kruger Rands often requires finding a reputable dealer, waiting for an appraisal, and potentially shipping the metal securely.
This friction can take days or weeks, which leaves the final price you get for your gold at the mercy of market movements. In addition, dealers rarely sell or buy gold at the “spot price”, typically adding a 3% to 5% premium on any sale or purchase.
Total cost of ownership
While gold bulls love to focus on the price of the metal, the carrying costs of physical ownership are often left out of the conversation.
Holding physical gold assets, like bars or coins, requires secure storage, like a safe or a vault for larger holdings.
These storage facilities come with a cost. In addition, standard homeowners’ insurance policies do not cover significant amounts of bullion, and specialised cover is expensive, which means the risk of theft can leave owners out of pocket.
There is also the risk of buying counterfeit gold. Advanced fakes, such as tungsten-filled bars, can fool even experienced buyers without professional testing.
Easier accessibility
With prices at record highs, investors also require significant capital to buy a bar or Kruger Rand. If you have R5000 to invest, your options for physical gold are limited to tiny fractional coins.
Investing in an ETF allows you to gain exposure with any amount, with platforms like Clarity, by Investec giving you a share of the precious metals market from as little as R25.
The platform also offers investors a range of precious metals ETFs to build a basket of commodities to diversify portfolios with different metals and miners from around the world.
Popular precious metals ETFs available In South Africa include:
NewGold Issuer Limited
The NewGold Issuer Limited ETF (GLD-JSE) is a Shariah-compliant ETF that tracks the spot price of gold, with each debenture equal to roughly 1/100th of an ounce. It provides a liquid, cost-effective way to invest directly in physical gold bullion.
NewGold Platinum ETF
The NewGold Platinum ETF (NGPLT-JSE) provides direct exposure to physical platinum, with each share representing approximately 1/100th of an ounce, offering a low-cost, secure way to track the spot price of platinum.
Africa Palladium ETF
The Africa Palladium ETF (ETFPLD-JSE) is designed to give investors exposure to the palladium price, backed by physical palladium bars stored in secure vaults, providing a cost-efficient, stock-like way to invest in this precious metal on the JSE.
VanEck Gold Miners ETF
VanEck Gold Miners ETF (GDX-NASQ) seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MarketVector Global Gold Miners Index, which is intended to track the overall performance of companies involved in the gold mining industry.
iShares Gold Trust
The iShares Gold Trust (IAU-NASQ) aims to reflect generally the performance of the gold price. This ETF offers investors convenient, cost-effective exposure to the day-to-day movement of the price of gold bullion without the need to own the physical asset.
