Times Are Changing for Commodity ETFs

The scramble for commodity-related ETFs is in full swing. Precious metal ETFs are enticing investors as a way to hedge against possible dollar and inflationary worries, but the CFTC could change how these funds look in the coming months.

In the short-term, the fourth quarter could be volatile for gold prices, and some analysts believe gold will be vulnerable to pullbacks if the dollar appreciates or liquidation occurs, writes Melinda Peer for Forbes. But physically-backed ETFs, such as the SPDR Gold Shares (NYSEArca: GLD), are currently picking up on weaker dollar expectations.

ETF Securities is expanding its physically-backed investment products and recently launched ETFS SIVER TRUST (NYSEArca: SIVR) and ETFS GOLD TRUST (NYSEArca: SGOL). Both funds are 100% backed by the physical asset held in Switzerland, which is favored because it is believed to be out of the sphere of influence of the United States and Europe.

Meanwhile, potential regulations coming forth from the CFTC has some funds doing a little shuffling.

PowerShares is restructuring its funds in an attempt to take advantage of loopholes to meet the “safety position limits,” remarks Don Dion for TheStreet. The ETFs PowerShares DB Agriculture (NYSEArca: DBA) and PowerShares DB Commodity Index Tracking (NYSEArca: DBC) will reduce positions in corn and wheat futures by the end of October.

DBA and DBC invest in commodities futures to achieve their intended tracking strategies. In addition to reducing their current positions, DB will take positions in coffee, cocoa, live cattle, copper, natural gas and gasoline. This will allow the fund to continue to operate within limits.

DBC will start investing in oil futures contract traded in Europe – a loophole that allows the fund to reduce U.S. oil holdings while adding foreign holdings.

Managers of United States Natural Gas (NYSEArca: UNG) have already cut back on natural gas futures contracts listed in the United States in favor of swaps elsewhere.

The CFTC has noted its intent on increasing position limits placed on future-based commodity ETFs. ETF managers have already stoped creation of new shares, shut down funds and restructured underlying investment strategies.

Max Chen contributed to this article.

Comments

[roy piper:]

For all the tall about SGOL and the supposed clamor for a Swiss based gold ETF, the reality of the popularity of that product is grossly exaggerated. Despite all the hullabaloo about it's so called advantages, the gold investing public has responded with a collective yawn. The volume for SGOL since it's recent inception has been 1% that of GLD. And since the "new-ness" of the story has passed, I do not see it being a major player down the line if it has not achieved it by now.

Oct 05 04:31 PM

[GMiki1:]

Really? I sold GLD and went for SGOL because it's audited twice yearly to make sure it has the gold it claims it does to back every share. I still hold SLV, but don't want to be the last man standing there, either. I bought some SILV while waiting to sell SLV. GLD is very well known, but SGOL will pick up as it becomes better known among a public that doesn't follow the precious metals as much as some of us do.

Oct 05 06:12 PM

[roy piper:]

Ummm, GLD is also audited twice yearly and the gold counted. It clearly states this in the prospectus, in the 10-K, and the auditor's report is available on the website.

Oct 05 06:24 PM

[Analyste de...:]

I think there's potentially a FEW STORIES in the foreign & emerging mkts exposure of any commodity ETFs.

1) What's the %age exposure to foreign/emerging mkts?
2) If tens of millions of dollars is opportunistically moving into smaller bourses, what are the additional potential benefits & risks to the ETF investor?
3) Will investors realize any potential gain/losses from forex?
4) What are ancillary risk premia associated with contracts from Zeebrugge, TTF, NBP?

Consider this question: if Uncle Buck was falling against the Loon, would you rather buy a (Canadian) Natural Gas Exchange-based ETF or UNG? (Canada is the 2nd largest exporter, after Russia.)

The world's largest producer of NatGas is Russia, 3x the output of Canada. How comfortable are you holding an ETF w/ contracts from Санкт-Петербургская биржа, given their signed agreements to sell natgas for بورس نفت ایران ? (Look them up!!!)

Yeah, I'd suggest the Devil's in the details ...

Oct 05 07:48 PM

[talld:]

Oil and gold are more strongly tied than gold and the dollar.
(from my own algorithm as seen below)
(the higher the score, the greater the correlation, and a negative value means an inverse correlation, so the larger the negative the more inversely correlated)


OIH AUY 36 2009-09-15 00:00:00.000
OIH AUY 33 2009-09-16 00:00:00.000
OIH AUY 30 2009-09-17 00:00:00.000
OIH AUY 36 2009-09-18 00:00:00.000
OIH AUY 37 2009-09-21 00:00:00.000
OIH AUY 34 2009-09-22 00:00:00.000
OIH AUY 44 2009-09-23 00:00:00.000
OIH AUY 50 2009-09-24 00:00:00.000
OIH AUY 51 2009-09-25 00:00:00.000
OIH AUY 50 2009-09-28 00:00:00.000
OIH AUY 53 2009-09-29 00:00:00.000
OIH AUY 49 2009-09-30 00:00:00.000
OIH AUY 43 2009-10-01 00:00:00.000
OIH AUY 41 2009-10-02 00:00:00.000
OIH AUY 41 2009-10-05 00:00:00.000

UUP AUY -32 2009-09-10 00:00:00.000
UUP AUY -28 2009-09-11 00:00:00.000
UUP AUY -23 2009-09-14 00:00:00.000
UUP AUY -21 2009-09-15 00:00:00.000
UUP AUY -20 2009-09-16 00:00:00.000
UUP AUY -18 2009-09-17 00:00:00.000
UUP AUY -17 2009-09-18 00:00:00.000
UUP AUY -16 2009-09-21 00:00:00.000
UUP AUY -14 2009-09-22 00:00:00.000
UUP AUY -17 2009-09-23 00:00:00.000
UUP AUY -17 2009-09-24 00:00:00.000
UUP AUY -24 2009-09-25 00:00:00.000
UUP AUY -29 2009-09-28 00:00:00.000
UUP AUY -29 2009-09-29 00:00:00.000
UUP AUY -24 2009-09-30 00:00:00.000
UUP AUY -20 2009-10-01 00:00:00.000
UUP AUY -18 2009-10-02 00:00:00.000
UUP AUY -17 2009-10-05 00:00:00.000

Oct 06 12:16 PM

[djj420:]

The tin foil hat crowd loves to imply or even state that GLD & SLV are scams. They scour over every disclaimer in the prospectuses like archaeologists examining the Shroud of Turin.

Oct 06 01:21 PM

[optionsgirl:]

Check out ZGOLD.

Oct 06 03:39 PM