ETF Trends Precious Metals and Other Base Metal ETFs

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As a follow-up to our earlier piece, we had a chance to catch up with Will Rhind, Head of US Operations for ETF Securities, “a leading promoter and issuer of ETF Securities exchange traded products (ETPs), specializing in commodities, with global assets under management of over $22 billion as of October 2010,” according to their website. We covered a range of topics with Will including speculation over a physically backed aluminum or copper ETF.

MM: Who are the investors in your funds?

ETF Securities: We aren’t broker/dealers so we only see the intermediaries who manage money for individuals (e.g. hedge funds, mutual funds and wealth managers). The investors tend to be anybody from mutual funds down to private wealth managers who are managing money for those with multi-millions of dollars of net worth.

MM: We attended a scrap conference a few weeks ago and one panel participant (a nickel trader) said that he thought the mood in the US was decidedly “pessimistic vs. the European markets (he had recently spoken at a conference in Italy). What is your take on market pessimism in terms of what you are seeing?

ETF Securities: Gold prices themselves are being driven higher at the moment because of the softening of the US dollar and another potential bout of quantitative easing. Hard assets are inflating on the back of that. But in terms of economic pessimism I would say the opposite. People are more optimistic in the US for two reasons. First, this year the biggest inflows globally into ETF Securities range of gold ETFs were due to the European sovereign debt crisis (Greece). A larger percentage of investors in Europe bought gold than in the US. From a sentiment perspective I would say that European investors were more negative. Second, in platinum and palladium or the more quasi-industrial metals used in industry, they are more highly correlated to growth generally. We’ve seen steady inflows into US palladium (PALL) and platinum ETFs (PPLT) but outflows on the European side of those same investments. So I see European investors as more negative.  US investors appear quite a bit more upbeat than European investors.

MM: What are you seeing in terms of silver and interest in silver?

ETF Securities: We see continued interest in silver and no redemption in SIVR (silver) for the last few months. Silver prices as we know have rallied significantly over the last few weeks. Now for the first time, people are starting to talk about silver in a positive light. Prices were languishing at $15-17/oz and gold had perpetually increased. The consensus among our investors seemed to be that one of two things would eventually happen with those dynamics – silver prices had to rise or gold prices would have to decrease. There are a lot of investors that generally perceive silver at $20/oz  to be undervalued relative to gold at $1350/oz.

MM: We’ve seen a big run up in other metals markets (besides precious metals) such as tin, even nickel to some degree. What are you seeing there and what are the prospects for a base metal ETF say in copper or aluminum?

ETF Securities: Tin and nickel are examples of metals that are not well understood by investors whereas headline metals such as copper and aluminum are better understood. People can invest in those and if they feel the economy is on track they might see copper as a more leveraged play on a global recovery.

In terms of a physically backed aluminum or copper ETF, ETFS offered no comment.

–Lisa Reisman

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