What you need to know about investing in exchange traded commodities

Fsp Invest, 04 Dec. 2013

Tags: exchange traded funds, etfs, exchange traded commodities, newgold, newplat, gold, physical gold, platinum, physical platinum, funds, investing, commodities



If you’re looking to invest in physical commodities, such as gold and platinum, exchange traded commodities could be right up your street. This type of exchange traded fund can be very useful, but they can also have their drawbacks. Let’s have a look at what you need to know about investing in exchange traded commodities…



Exchange traded funds (ETFs) give you the chance to invest in a wide array of assets, the team of experts at MoneyWeek explain…

ETFs are a type of investment fund that trade on the stock market just like ordinary shares. That means to buy and sell ETFs you use your stockbroker, just as if you were buying or selling shares.

Exchange traded commodities are ETFs that track the price of a certain commodity.

Currently in South Africa there are two different exchange traded commodities:
  • NewGold: This ETF invests in gold bullion. Each unit you buy gives you about 1/100 ounces of gold, priced in rands.
  • NewPlat: This ETF invests in platinum. Each unit you buy gives you about 1/100 ounces of platinum, priced in rands.
NewGold and NewPlat give you the change to invest in physical gold or platinum without having to hold the commodity yourself.

Be wary of more complicated exchange traded commodities

Across the globe there is a vast range of different exchange traded commodities available to invest in. Some ETFs even track the price of soft commodities like corn or wheat.

In short, the problem with these ETFs is that they don’t own the underlying commodities. That’s because while storing gold bars is pretty easy, storing tonnes of grain isn’t.

So unless you have an intimate understanding of the commodities futures market, then stick to physically-backed precious metals ETFs, like NewGold and NewPlat. These track the price reasonably accurately, so it’s easier to understand what they do.

Whether they will make you a profit or not is a different matter – but at least you can understand the bet that you’re making.

So there you have it, what you need to know about investing in exchange traded commodities.


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