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Precious metals Gold, silver, platinum and palladium

Precious metals

Precious metals not only have an intrinsic value but also offer exceptional diversification and are highly suited for hedging a portfolio against inflation risks, as it is not only the gold price that often moves independently of stock prices.

Why gold, silver, platinum and palladium bring real value to your portfolio

Precious metals are rare, as well as virtually imperishable, and their unique properties make them invaluable for use in jewellery and industrial production: three good reasons why precious metals have fascinated mankind for centuries - and why gold, silver, platinum and palladium are also appealing to investors.

In this setting, gold shines as an investment of choice:

  • The price of the yellow metal typically rises - or at least remains stable -during times of crisis.
  • The reason for this is its low correlation with many other standard asset classes. 
  • In other words, the gold price generally moves independently of stock prices, so precious metals such as gold can enhance and stabilize a portfolio.

Risk spreading: Gold exhibits only a low correlation with most standard asset classes

risk spreading: gold compared to other asset classes

Characteristics of Precious Metals

  • Precious metals are virtually indestructible
  • Limited quantity and cannot be reproduced. That's why physical precious metals always have an intrinsic value of their own. While a particular currency's purchasing power will decline during inflationary periods, gold retains its own over the centuries.
  • Rise of emerging economies such as China ensures steady high demand for precious metals. With prosperity on the rise, more and more people in China can afford to indulge their taste for fine gold, silver and platinum jewellery. 
  • Asia's emerging economic regions in particular are witnessing a surge in sales of electronic products such as cell phones, as well as industrial products such as automobiles - resulting in growing demand also for precious metals. Without silver, the electronic circuits used in smartphones would be inconceivable - nor would catalytic converters in gasoline and diesel engines run efficiently without the use of platinum or palladium.

UBS ETFs on precious metals offer decisive advantages over other precious metal investment options, as illustrated by the following table, using gold as an example.

Comparison of various gold investment options

UBS ETFs on gold offer a wealth of benefits:

 

Physical gold 

Metals account

UBS-IS Gold ETF

Benefits

  • No issuer risk
  • No management fee or trading costs
  • No management fee or trading costs
  • No issuer risk (funds)
  • Permanent tradability
  • Narrow bid/ask spreads
  • Right to redemption in kind
  • Currency hedging available for EUR and CHF

Disadvantages

  • Relatively wide bid/ask spreads (90-180 bp)
  • Production costs (only for separate custody
  • Issuer risk (no possession of physical gold)
  • Relatively wide bid/ask spreads (90-180 bp)

• Management fee and trading costs

Your benefits of investing in precious metals at a glance

  • No tracking error: UBS ETFs track the price performance of the relevant precious metal less costs
  • No counterparty risk from derivatives: UBS ETFs on precious metals have no counterparty risk from derivatives as the fund invests in physical precious metals. The fund is fully invested at all times.
  • High level of security: Precious metals are physically segregated and stored in a specially designated high-security vault in Switzerland.
  • Right to redemption in kind: Investors can also have the relevant precious metals physically delivered – for the white metals, delivery is made exclusively in standard bars; in the case of UBS gold ETFs, in other standard trading units also
  • Transparency and liquidity: Thanks to flat management fee, full transparency in terms of costs

However, investors planning to buy precious metals to stabilize their portfolio or exploit return opportunities will find themselves faced with a very important question: What is the best way to invest in precious metals?


The most obvious option seems to be the direct purchase of bars or coins, at least when standard trading quantities are involved.

  • If precious metals are stored at home, there is a security risk; if they are stored in a bank safe deposit box, additional costs are incurred. 
  • Buying and selling them is also generally labor-intensive and time-consuming, with the risk of large spreads between buy and selling prices.

This is frequently the case for precious metal accounts as well, which are additionally subject to issuer risk.

Why UBS precious metals ETFs are an attractive alternative to stocks

UBS ETFs on precious metals offer the flexibility and liquidity of stocks combined with the advantages of coins and bars. One of the key benefits of UBS ETFs is that investors' capital is invested in physical precious metals, with the UBS ETF (CH) Gold investing up to 100% in physical gold.

For the white metals (silver, platinum and palladium) the equivalent value of up to one standard bar remains on a metals account. This allows maximum holdings of under one bar to be exposed to the performance of the respective white metal.

UBS ETFs are stored securely in vaults

All assets are otherwise invested exclusively in physical precious metals, which are stored separately in a specially designated high-security vault in Switzerland. Nevertheless, UBS ETFs on precious metals can be traded as flexibly as equities.

 If investors prefer, they are entitled – in lieu of cash redemption – to redemption in kind, i.e. starting at a certain amount, investors can have the equivalent value of their ETF units in Switzerland delivered in standard bars or, in the case of UBS ETFs on gold, in other standard trading units up to 1 gram.

UBS ETFs on precious metals

  • Physical investment
  • May be traded as flexibly as equities
  • Redeemable in kind

Irrespective of the economic conditions, gold is virtually always in demand

When economic conditions are favorable and people consume more luxury goods, there is growing demand in the watch and jewellery industries, for example, while the use of gold in the industrial sector and in dentistry also increases.

By contrast, demand for gold among investors is stronger in times of economic uncertainty as gold is seen as a secure investment. Since gold is rare and durable, it possesses real value – provided the investments are in physical gold.

For many investors, gold's stability in terms of value also makes it an ideal hedging tool against inflation.

Stagnating production

Growing demand for gold stands contrasts with its stagnating supply. Gold mine production has flatlined since its peak in 2001. Many mines are already relatively old while major new gold discoveries are rare – and when new gold veins are found, preparatory excavation work often take several years.

Gold

For many investors, gold's stability in terms of value also makes it an ideal hedging tool against inflation.

Water treatment as demand driver

As the world's best electrical conductor, silver plays a key role in the manufacture of electronic goods, which accounts for roughly one-half of the precious metal demand. With rising prosperity and rapid industrialization in emerging countries, its demand should continue to grow in the coming years.

Its antiseptic properties mean that silver is also needed in ever-increasing quantities for water treatment, for example, so demand for it is already exceeding supply.

Steadily rising demand

Over recent years, silver has also become increasingly popular among investors, and the proportional amount of silver used for coins and direct investments has steadily risen. The reasons for the growing demand on the part of investors are similar to those behind that for gold: As physical silver also possesses real value, it can offer long-term protection against inflation.

Similarly, the price of silver is generally negatively correlated with the US dollar – i.e. its price moves either independently of or counter to US currency. The addition of silver to an investment portfolio can hedge to some extent against exchange rate fluctuations in the US dollar.

Silver

The world's best electrical conductor, silver is a key factor in electronics production.

Harder and more stable than gold

Like silver, platinum is also particularly corrosion-resistant. That is why the precious metal is in such demand for the manufacture of watches and jewellery, fountain pen nibs, laboratory equipment, dental implants and rust-proof components. 

Platinum's arguably most important use is in the manufacture of catalytic converters for the automotive industry. Automobile production accounts for about half of today's global demand for platinum and looks set to boom also in the years ahead. The Indian and Chinese markets in particular could well be the main growth drivers, a clear indication that the demand for platinum is closely linked to global economic growth.

Limited supply

Yet the supply of platinum is comparatively limited. An increase in demand would lead to a shortage in the market and drive platinum prices higher. Three-quarters of the world's platinum supply originates from South Africa.

The long-term outlook for platinum prices is positive thanks in part to this combination of growing demand and inelastic supply.

Platinum

Automobile production accounts for some 50% of global demand, and looks set to boom also in the years ahead.

In demand both in India and in China

Palladium resembles platinum in many ways with the distinction that it is harder, tougher and more malleable than platinum, or any other precious metal for that matter. This accounts for the widespread use of high-strength palladium alloys in the jewellery and dental industries. 

Even more important, however, is the role of palladium as an industrial metal, notably in catalytic converters for automobiles. The manufacture of exhaust gas purifiers accounts for about half of the demand for it. Like platinum, then, palladium may also benefit from the upward trend in the automotive industry in coming years, with the markets in India and China very likely to be the main growth drivers.

Expected continuation of the upward trend

If the global economy starts to pick up again, we should see stronger demand for palladium in other industrial applications as well, ranging from the manufacture of electrical and electronic products to electroplating and the production of chemicals through to the purification of hydrogen. In these applications and in catalytic converters, palladium comes into its own thanks to its outstanding ability to bind hydrocarbons.

Palladium

Catalytic converters can't work without it.

Precious metals investing products in focus

  

Fundname ISIN Replication Fee Last NAV
Currency
Fact sheet

UBS ETF (CH) Gold hedged CHF (CHF) A-disCH0106027128

Physical

0.23%

114.7731 CHF

pdf

Fund description

The fund invests in physical gold in the form of standard bars between 1 gram and 12.5 kilograms (about 400 oz). The gold is kept in a high security vault of Switzerland.The investment objective is to replicate the performance of the London Bullion Market Association (LBMA) Gold Price hedged in CHF. The stock exchange price may differ from the net asset value.

UBS ETF (CH) Gold hedged EUR (EUR) A-disCH0106027144

Physical

0.23%

81.6507 EUR

pdf

Fund description

The fund invests in physical gold in the form of standard bars between 1 gram and 12.5 kilograms (about 400 oz). The gold is kept in a high security vault of Switzerland.The investment objective is to replicate the performance of the London Bullion Market Association (LBMA) Gold Price hedged in EUR. The stock exchange price may differ from the net asset value.

UBS ETF (CH) Gold (USD) A-disCH0106027193

Physical

0.23%

125.2738 USD

pdf

Fund description

The fund invests in physical gold in the form of standard bars between 1 gram and 12.5 kilograms (about 400 oz). The gold is kept in a high security vault of Switzerland.The investment objective is to replicate the performance of the London Bullion Market Association (LBMA) Gold Price in USD. The stock exchange price may differ from the net asset value.

UBS ETF (CH) Palladium (USD) A-disCH0118929022

Physical

0.35%

94.8636 USD

pdf

Fund description

The fund invests in physical palladium in the form of standard bars (1-6 kilograms, according to LPPM). The palladium is physically segregated and stored in a high-security vault in Switzerland.The investment objective is to reflect the performance of palladium (LPPM Palladium pm fixing price) after deduction of costs. The stock exchange price may differ from the net asset value.

UBS ETF (CH) Platinum (USD) A-disCH0116014934

Physical

0.35%

89.2262 USD

pdf

Fund description

The fund invests in physical platinum in the form of standard bars (each weighting between 1 and 6 kilograms, according to LPPM). The bars are physically segregated and stored in a high-security vault in Switzerland.The investment objective is to reflect the performance of platinum after the deduction of costs. The stock exchange price may differ from the net asset value.

UBS ETF (CH) Silver ETF (USD) A-disCH0118929048

Physical

0.45%

164.8310 USD

pdf

Fund description

This fund invests in physical silver in the form of standard bars (according to London Bullion Market Association (LBMA) Silver Price). The silver is physically segregated and stored in a high-security vault in Switzerland.The investment objective is to reflect the performance of silver (London Bullion Market Association (LBMA) Silver Price) after deduction of costs. The stock exchange price may differ from the net asset value.

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