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Gold and silver ETFs have recently regained their luster. But do these precious metals deserve a place in your investment portfolio? We provide a list of the best precious metals ETFs by performance, as well as the benefits and risks that investors need to know before buying these funds. 

What Is a Precious Metals ETF?  

A precious metals ETF is an exchange-traded fund that primarily invests in precious metals, such as gold, silver, platinum and palladium. These ETFs aim to track the price performance of an underlying precious metals benchmark asset. This provides investors with an opportunity to gain exposure to the precious metals market without physically owning the metals themselves. 

Precious metals ETFs may track an underlying asset benchmark, such as gold, either directly or indirectly.  

Direct Investment in Precious Metals 

A direct investment involves physically buying and owning precious metals, such as gold, silver, platinum or palladium, in the form of coins, bars or bullion. Most precious metals ETFs use the direct investment method. The ETF provider purchases and holds the actual physical metal that the ETF aims to track. For example, a gold ETF would buy and store gold bullion in a secure vault.  

This approach provides investors with direct exposure to the underlying metal, eliminating counterparty and credit risks associated with derivatives. Direct investment in precious metals is often considered a hedge against inflation, economic uncertainty and currency devaluation. 

Indirect Investment in Precious Metals 

An indirect investment involves gaining exposure to precious metals without physically owning the metal itself. The ETF provider will typically use derivatives, such as futures contracts, to replicate the performance of the benchmark asset without physically holding the metal. Indirect investment may also be equity-based, which means the ETF invests in stocks of mining companies that extract and produce these metals. 

10 Best Precious Metals ETFs by Performance 

To arrive at our list of best precious metals ETFs, we then ranked our finalists by one-year returns, as of July 18, 2023.  Silver ETFs led the way with returns higher than 30% and several gold funds round out the top ten. For deeper reference, we include each fund’s AUM and expense ratio. 

Pros & Cons of Precious Metals ETFs 

Precious metals ETFs offer several advantages and disadvantages to investors. Understanding the pros and cons can help investors make informed decisions about including these ETFs in their investment portfolios.  

Here are the key pros and cons of precious metals ETFs: 

Pros 

• Diversification: Precious metals ETFs provide investors with exposure to a diversified basket of precious metals, such as gold, silver, platinum and palladium. Precious metals and other commodities can act as a hedge against inflation and economic uncertainty. 

• Liquidity: Precious metals ETFs are traded on stock exchanges, making them highly liquid. Investors can easily buy or sell shares during market hours at prevailing market prices. 

• Cost-effective: Precious metals ETFs typically have lower expense ratios compared to actively managed mutual funds. This cost-effectiveness can improve overall returns for investors. 

• Accessibility: Investing in precious metals ETFs is accessible to a wide range of investors, including individual investors, institutional investors and retail investors. 

• No storage hassles: Investors in precious metals ETFs do not need to worry about storing and securing physical metals. The ETF provider takes care of the storage and handling of the precious metals. 

• Flexibility: Investors can buy and sell precious metals ETFs in real time during trading hours, providing flexibility in managing their investment positions. 

Cons 

• Market volatility: Precious metals ETFs can be subject to market volatility, influenced by factors such as changes in precious metals prices, geopolitical events and global economic conditions. 

• Tracking errors: Some ETFs may not precisely track the performance of their underlying precious metals due to factors like tracking errors, management fees and trading costs. 

• Counterparty risk: ETFs that use synthetic replication may be exposed to counterparty risk, as they rely on derivatives and swap agreements with financial institutions. If the counterparty defaults, it can impact the ETF's performance. 

• Dividend income: Precious metals ETFs, particularly physical replication ones, do not provide regular dividend income. They are more focused on capital appreciation or providing a hedge against market risks. 

• Storage costs: ETFs that hold physical metals may have storage costs, impacting the overall expenses of the fund. 

• Market sentiment: The performance of precious metals ETFs can be influenced by market sentiment and speculative trading, impacting short-term price movements. 

Is There a Vanguard Precious Metals ETF? 

As of July 18, 2023, Vanguard did not offer a precious metals ETF. Effective September 26, 2018, the Vanguard Precious Metals and Mining Fund (VGPMX)changed its name to the Vanguard Global Capital Cycles Fund. In doing so, Vanguard reduced the fund’s exposure to precious metals to about 25% of the fund’s assets.

Bottom Line on Precious Metals ETFs 

Precious metals ETFs offer investors a means of exposure to the price of a particular precious metal, such as gold or silver, or a range of precious metals that may also include platinum, palladium and copper. These ETFs can help to diversify a portfolio, but are not typically used as stand-alone investments.  

As with any investment, it's essential for investors to carefully consider their investment objectives, risk tolerance and time horizon before investing in precious metals ETFs. Thorough research and understanding of the fund's characteristics and tracking method are crucial for making informed investment decisions. 

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