The surge in precious metals in 2010 has resulted in rising demand from retail investors for paths into the market. ETF Securities may be supplying the solution, via a series of precious metal ETFs.Just how big is that demand? ETF Securities’ five products now hold more than $2.5 billion under management.
Investors are buying, but do they know what these ETFs actually track and actually hold?
GLTR, the newest offering from ETF Securities, is backed by a basket of precious metals, namely 0.03 ounces of gold, 1.1 ounces of silver, 0.004 ounces of platinum and 0.006 ounces of palladium. The ETF’s value is mostly made up of gold, and all the metals are held in an account by JPMorgan.
But can you actually get your hands on the metal?
Supposedly, yes, but there are very strict rules for redemption. If you own a share of the ETF, you cannot redeem it. It takes a basket the size of 50,000 shares to be able to redeem the ETF into the actual metals, according to the prospectus.
In the words of the prospectus (emphasis ours):
Shares are issued and redeemed continuously in aggregations of 50,000 Shares in exchange for Bullion rather than cash. Individual investors cannot purchase or redeem Shares in direct transactions with the Trust.
So even if you own 50,000 shares of the ETF, you can’t redeem it. You need to go through a broker dealer to get the deal done.
GLTR might be great to track the market, but if you actually want delivery of that gold, silver, or palladium, you may want to look elsewhere.