Metal matters

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Humans have been drawn to precious metals over history for various reasons. Prized for shine and scarcity, investors are often interested in them due to their role as a hedge against market uncertainty and currency fluctuations. The likes of gold and silver have intrinsic value, which is not dependent on the performance of specific companies or tied to one location. These metals are one way for investors to gain diversification from other kinds of stocks in their portfolio.

Investors are also often drawn to precious metals during times of high inflation, as they tend to retain their value over time and can readily be exchanged for cash. As seen with gold prices in early 2024, this value can rise during periods when inflation is a particular concern. Although due to functioning as safe haven assets, precious metals are likely to have lower levels of capital appreciation during share market upturns. 

The main precious metals include gold, silver, platinum and palladium. Gold is the most common investment choice and offers investors the largest number of options in terms of stock and ETFs. Investors should note that the significant proportion of demand for some of these metals, such as silver and palladium, comes from industrial uses and can affect their pricing over time. 

Wheaton Precious Metals Corporation ($WPM)

Wheaton Precious Metals is a streaming company that focuses on precious metals. The firm provides upfront financing to mining companies in exchange for the right to purchase a percentage of their future precious metal production at a predetermined price. Wheaton provides  an additional payment once the metal is delivered and this setup minimises their exposure to the operational risks associated with traditional mining companies. For Q1 FY 2024 revenues, gold accounted for US$191m and silver for US$97m of the US$297m total. This stock is better suited for investors wanting income rather than high capital growth, as Wheaton agreeing upon prices early in the process means their impact of recent commodity price changes is limited. 

Newmont Corporation ($NEM)

Newmont is one of the world's largest gold mining companies, with operations spanning multiple continents. They do produce other metals in smaller quantities, predominantly copper, zinc and silver, but shifts in these commodity prices are unlikely to impact the firm’s share price. After making significant acquisitions in recent years, including that of Australian business Newcrest’s assets, Newmont is currently working towards streamlining all of its mining operations and reducing debt. The company has projects across the spectrum of mining, from exploration sites to large scale mines already in production. Investors should keep an eye on the progress of their new projects, as the stock price can be impacted by any delays that could result in disruptions of Newmont’s metal sales.  

Pan American Silver Corporation ($PAAS)

Pan American is a major silver mining company with operations in North and South America. The business experienced a basic loss of US$0.08 per share in Q1 FY 2024, being affected by inflation adjusting figures from Argentina, falls in investment prices and inventory costs. Pan American sold just over 2.25 million ounces of silver and around 0.22 million ounces of gold in Q1 FY 2024. However, the average realised price per ounce of US$2,078 for gold was significantly higher than the one for silver, which was US$22.61. Looking at the difference between the commodity prices and what it costs the company to produce the metal, referred to as the all-in-sustaining costs (AISC) per ounce, could give investors insights about future potential revenues. 

Searching for opportunities 

There are several ETF options for investors who want to invest in precious metals, rather than looking for a specific stock. ETFs are also the simplest way for investors to gain access to the spot pricing of metals and provide a more liquid avenue when compared trying to buy the physical asset. While commodity prices do affect the shares of gold or silver miners, investors should note that other factors could override metal prices. Production costs, the economic and political conditions in the countries where they operate can also cause the stock price to move. 

Investors wanting to get exposure to the gold price and looking for products physically backed by gold bars have a range of choices. The SPDR Gold Shares ETF ($GLD) has the number of assets, but comes with a relatively higher fee of 0.40%. The iShares Gold Trust Micro ETF ($IAUM) could appeal to cost conscious investors with a fee of 0.09%, while the iShares Gold Trust ($IAU) and the abrdn Physical Gold Shares ETF ($SGOL) have fees of  0.25% and 0.17% respectively.

To invest in gold mining companies listed on Canadian and U.S. exchanges, the Sprott Gold Miners ETF ($SGDM) is one option. It had 33 holdings as at 9 May 2024, while the Van Eck Gold Miners Market Vectors ETF ($GDX) had 59 holdings at this date and tracks the NYSE Arca Gold Miners Index. As many major mining companies have multiple listings and look to the deep capital markets of North America to gain funding, the MSCI Global Gold Miners iShares ETF ($RING) has relatively similar holdings. 

Beyond the shine

The Junior Gold Miners ETF Market Vectors ($GDXJ) and Sprott Jr. Gold Miners ETF ($SGDJ) are for investors wanting exposure to smaller companies. However, they should remember that their performances tend to be more volatile than larger ones and the prospects of junior mining firms are especially sensitive to commodity prices. Those looking for earlier stage silver mining companies should consider the Amplify Junior Silver Miners ($SILJ). 

For investors looking to access the price of silver in a physically backed product, the iShares Silver Trust ($SLV) comes with a lower fee of 0.50% compared to the 0.60% one of the Sprott Physical Silver Trust ($PSLV). The Global X Silver Miners ETF ($SIL) and iShares MSCI Global Silver and Metals Miners ETF ($SLVP) track different indexes of miners producing the metal, with investors being well served by checking the detail of their holdings before making a trading decision. 

Investors wanting to capture the performance of the platinum price should look at the abrdn Physical Platinum Shares ETF ($PPLT). It is a physically backed product and the abrdn Physical Palladium Shares ETF ($PALL) is its counterpart focusing on palladium. The Sprott Physical Platinum and Palladium Trust ($SPPP) offers a combined product, as the main driver of demand for both metals is their use as catalysts in the automotive industry.