The Best Precious Metal Funds: Gold, Silver, Platinum And Palladium

by: Fred Piard

In a previous article I have shared my criteria to select gold funds and offered my short list: GTU, CEF and Swiss funds series by Zürcher Kantonal Bank (ZKB) and Julius Bär Bank. The Sprott fund PHYS is as safe as GTU, but historically the premium has been higher. When buying metal it's not necessary to pay more for a brand. All these funds are much safer ways to own gold than GLD, SGOL, AGOL and any other ETF or certificate. Maybe I forgot another fund or two. If you think so, just check my criteria here and then feel free to share it in a comment below.

Now I would like to give more technical information about what are from my point of view the best precious metal funds in the world: the ZKB ones. This is not only about gold: silver, platinum and palladium funds are a safer alternative to SLV, PPLT and PALL.

About ZKB
First, some points about the bank. ZKB was ranked by Global Finance in 2011 as the 4th safest bank in the world (read here). It has a AAA rating by three agencies (documents can be downloaded here). Its assets have an unlimited guarantee by the cantonal state of Zürich (pdf documents here in German and here in French). Zürich state has itself a AAA rating.

The Products
All products by ZKB are traded on the Swiss Exchange and declared under the Swiss law, which is known to protect investors. ZKB is the market maker of its own funds under the Swiss regulation rules. As a consequence it has to maintain liquidity with a limited spread. Practically, I noted that the spread was around 0.5%. The complete descriptions of the products are only in German, you can find them here.

ZKB precious metal funds are 100% backed by real metal stored in Switzerland. The size of bars (12.5kg for gold and 30kg for silver) is the minimal unit of delivery, but the share was made affordable for individual investors. For the gold funds, the annual fee is 0.4%. There is no additional tax for gold transactions in Switzerland. Of course investors have to pay taxes in their own country. It is possible to trade directly on the Swiss Market with a good online broker. Some countries, including the US, may regulate the purchase of these funds for their taxpayers. However, someone who really wants to buy can find a legal solution. What is illegal is to hide assets in Switzerland, not to own them.

American Proxies
There are Pink Sheet proxies for gold, silver and palladium ZKB funds. However, I strongly recommend to trade them directly on the Swiss Exchange. Honestly I don't know if and how the Swiss regulation rules about management and market making can be translated in the U.S. OTC market. Please do your own research if you plan to use the proxies.

How to identify them
The table below shows all ZKB precious metal funds and their identifiers. The currency is not important: what you buy is a weight of metal, just use your own currency. Every hedged version produces, in a specified currency, the nominal return of the metal in USD. This is equivalent to owning the metal PLUS a Forex position of the same amount in the specified currency. Be wary of this hidden leveraging. Until August 2011 it was very profitable to own the hedged gold fund in CHF (ZGLDHC) because the returns of gold and CHF has been compounding. Now that the Swiss Franc is pegged to the euro, I don't see any advantage in owning a hedged version. The attempts to suppress the Swiss Franc have always failed after some months or years in the past, so ZGLDHC may be interesting again in the future.

Fund Gold/USD Gold/CHF Gold/EUR Gold/GBP Gold/CHF (Hedged) Gold/EUR (Hedged) Gold/GBP (Hedged)
Bars 12.5kg 12.5kg 12.5kg 12.5kg 12.5kg 12.5kg 12.5kg
Inception 2009 2006 2009 2010 2010 2010 2010
ISIN CH0047533549 CH0139101593 CH0047533523 CH0104493298 CH0139101601 CH0103326762 CH0104493306
Fund Silver/USD Silver/CHF Silver/EUR Silver/CHF (Hedged) Silver/EUR (Hedged) Platinum/CHF Palladium/CHF
Bars 30kg 30kg 30kg 30kg 30kg 5kg 3kg
Inception 2009 2007 2009 2011 2011 2007 2007
ISIN CH0183136008 CH0183135976 CH0183135992 CH0183136024 CH0183136040 CH0183136057 CH0183136065
Click to enlarge

To clarify my position, I'm bullish on the long term, but not a gold bug. I put much more energy and time in probabilistic strategies (methodology here) than in precious metals analysis.

Disclosure: I am long GTU, CEF.

Additional disclosure: Also long SW:ZGLD, SW:ZSIL. I have no interest in promoting any financial product.