Investing in Precious Metals ETFs

The U.S. consumer price index rose 7% in 2021, hitting a 39-year high. The fast-rising inflation rate significantly affects purchasing power since dollars aren't stretching as far. A big driver has been central bank policy. The Federal Reserve Board has kept interest rates low while printing a lot of money to keep the economy afloat during the COVID-19 pandemic, devaluing fiat currency in the process. That's leading more investors to look at ways to hedge against the continued rise of inflation. 

One way you can do that is by investing in precious metals, and the easiest way is through exchange-traded funds (ETFs) focused on precious metals. Here's a closer look at some of the best precious metals ETFs.

Precious metals ETF list

There are almost 30 ETFs focused on precious metals. Some hold precious metals stored in bank vaults. Others make a different type of investment, including derivatives such as options or futures contracts that still offer some direct exposure to metals prices. Of the two, the best option is an ETF that focuses on directly holding physical precious metals because they tend to deliver performance that matches prices reasonably well after fees. The top precious metals ETFs to consider are:

Here's a closer look at these leading precious metals ETFs.

SPDR Gold Shares

SPDR Gold Shares is the largest gold ETF. The fund's sole assets are gold bullion stored in bank vaults and some cash. This strategy allows investors to participate in the upside of the price of gold without having to own the physical metal. That reduces costs (insurance and storage) and risks (theft or misplacement). 

The ETF is highly liquid. Because it trades on a major stock exchange, holders can quickly sell their shares and convert them to cash when needed. Owners pay a relatively modest ETF expense ratio of 0.4% in exchange for all of these benefits. While the expense ratio has caused the SPDR Gold Shares price to slightly underperform the price of gold over the long term, it can be worth the cost compared to alternatives. For example, many gold stocks have underperformed the price of gold over the years due to mine development cost overruns, mismanagement, and excess debt. For investors who want to roughly match the performance of the price of gold, SPDR Gold Shares is a great way to go. 

iShares Silver Trust

iShares Silver Trust is the largest silver ETF. The fund holds physical silver bars stored in bank vaults. It enables investors to participate in the upside of silver prices with fewer of the hassles and risks of alternative investments such as buying silver stocks or purchasing silver coins. 

The ETF is also highly liquid and charges investors a reasonable ETF expense ratio of 0.5%. Although the fee has caused the fund to slightly underperform the price of silver over the years, it can be worth it. The ETF enables investors to roughly match the price of silver; alternative investments such as silver stocks can significantly underperform due to myriad issues.

Aberdeen Standard Physical Platinum Shares ETF

The Aberdeen Standard Physical Platinum Shares ETF lets investors directly invest in platinum, a key precious metal used primarily to make catalytic converters for the auto industry. The ETF holds physical bars stored in bank vaults.

The ETF is one of the few ways to invest in platinum. While an interested investor could buy jewelry made from platinum or platinum bars, there aren't many publicly traded mining companies focused on the rare industrial metal. Those that do mainly mine platinum along with other metals, giving their investors less direct exposure to platinum prices. That makes the fund's 0.6% expense ratio even more reasonable. 

Aberdeen Standard Physical Precious Metals Basket Shares ETF

The Aberdeen Standard Physical Precious Metals Basket Shares ETF gives investors direct exposure to several precious metals. The ETF's precious metals basket includes physical gold, silver, platinum, and palladium. It holds physical bars of these precious metals in bank vaults. As of late 2021, the fund's net assets were approximately 57% gold, 26% silver, 12% palladium, and 4% platinum.

The ETF provides broad exposure to a basket of precious metals for a reasonable cost, given its 0.6% expense ratio. It's one of the few investments that provides investors with diversified exposure to the top precious metals in one vehicle. 

Aberdeen Standard Physical Palladium Shares ETF

The Aberdeen Standard Physical Palladium Shares ETF allows investors to directly invest in palladium. Like platinum, the primary use of palladium is for catalytic converters in cars. Palladium's other uses include jewelry and some dental fillings and crowns. Like the other ETFs on this list, this one holds the precious metal in bank vaults.

The ETF is one of the few ways to invest directly in palladium. Few mining companies focus on producing palladium. It's not as prevalent in jewelry as other precious metals, making the ETF's 0.6% expense ratio a reasonable cost to gain exposure to this particular precious metal.

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Lots of ways to invest in precious metals

There are lots of precious metals ETFs, which gives investors many options. Most of the top precious metals ETFs concentrate on owning physical bars of a particular precious metal, giving investors direct exposure to the metal. Investors have a choice: They can focus on one metal if they believe it will outperform the rest, or they can consider buying a basket of precious metals ETFs or an ETF that holds a basket of precious metals to gain exposure to all four main precious metals. Either way, investing in a precious metals ETF is an easy way to help hedge against the rise of inflation.