Precious Metal Investments
Date: June 17, 2013
The attorneys at Shepherd Smith Edward & Kantas are investigating the claims of investors who purchased positions in gold, silver, or other precious metals at the recommendation of their broker or financial adviser. Recently, increasing numbers of brokers have been pushing their clients to invest in precious metals or securities based on precious metals for various reasons, including, representations that such investments are “hedges” against a falling market or simply speculating on the price of precious metals, such as gold. Below is a chart showing the returns of many of the currently available investment options in gold and other precious metals.
|Fund Name||Ticker||Share Price||1 month||6 month||1 yr return|
|ETFS Phsical Asian Gold Shares ETF||AGOL||136.52||-2.30%||-18.84%||-14.46%|
|FactorShares 2x Gold Bull/S&P Bear ETF||FSG||9.71||-4.33%||-54.84%||-59.20%|
|the Market Vectors Gold Miners ETF||GDX||28.36||-1.22%||-38.98%||-39.56%|
|Market Vectors Gold Miners Junior ETF||GDXJ||11.32||-4.47%||-46.85%||-45.34%|
|Global X Pure Gold Miners ETF||GGGG||12.11||-5.98%||-41.67%||-45.94%|
|StreetTracks Gold Shares ETF||GLD||134.15||-2.66%||-18.27%||-15.01%|
|Global X Gold Explorers ETF||GLDX||15.82||0.89%||-47.82%||-50.56%|
|the UltraShort Gold ProShares ETF||GLL||85.61||4.05%||39.86%||24.36%|
|iShares COMEX Gold Trust ETF||IAU||13.48||-2.67%||-18.40%||-14.85%|
|Direxion Daily Gold Miners Bull 3x Shares ETF||NUGT||9.77||-9.54%||-81.87%||-84.78%|
|ETFS Physical Swiss Gold Shares ETF||SGOL||136.79||-2.65%||-18.42%||-14.91%|
|RBS Gold Trendpilot ETN||TBAR||28.07||0.11%||-5.49%||-3.04%|
|the ProShares Ultra Gold ETF||UGL||56.9||-5.69%||-35.10%||-31.15%|
|iShares MSCI Global Gold Miners Fund||RING||11.63||-4.83%||-39.74%||-43.24%|
|PowerShares DB Base Metals Fund ETF||DBB||16.76||-0.59%||-13.79%||-8.37%|
|Powershares DB Precious Metals Fund ETF||DBP||45.63||-51.40%||-72.87%||-17.87%|
|ETFS Physical Precious Metal Basket Shares||GLTR||74.9||-3.73%||-21.71%||-15.96%|
|the PowerShares Global Gold & Precious Metals ETF||PSAU||22.81||-3.63%||-37.56%||-36.09%|
|the SPDR S&P Metals & Mining ETF||XME||35.71||-5.15%||-19.88%||-9.43%|
|the ProShares Ultra Silver ETF||AGQ||21.78||-11.68%||-56.34%||-47.99%|
|PowerShares DB Silver Fund ETF||DBS||37.21||-6.41%||-33.22%||-24.96%|
|Global X Silver Miners ETF||SIL||13.65||-1.66%||-41.04%||-31.51%|
|iShares MSCI Global Silver Miners Fund||SLVP||13.24||-2.58%||-40.84%||-31.33%|
|ETFS Physical Silver Shares ETF||SIVR||21.81||-5.71%||-31.61%||-23.26%|
|iShares Silver Trust ETF||SLV||21.3||-5.63%||-31.67%||-23.44%|
|Global X Copper Miners ETF||COPX||9.94||-6.84%||-25.88%||-10.13%|
|First Trust ISE Global Copper Index Fund||CU||22.91||-5.80%||-24.21%||-9.87%|
|the ETFS Platinum Physical Shares ETF||PPLT||141.82||-3.79%||-10.81%||-3.10%|
|First Trust ISE Global Platinum Index ETF||PLTM||11.74||-2.41%||-17.38%||-22.66%|
The results that these investments have seen over the last year vary tremendously for a number of different reasons. First, while most of the precious metals securities are designed to increase in value as the price of its target precious metal increases, some of them do the exact reverse and increase in value as the price of its target precious metal falls (“inverse funds”). As a result, many of the inverse funds have achieved positive returns over the last year as the price of many precious metals have plummeted. However, if prices rise, these funds could quickly lose value.
Second, some of these investments are “leveraged,” meaning the investment borrows money or uses another strategy to let it get returns greater than the change in the underlying value of the precious metal it is tracking. For example, the UltraShort Gold ProShares ETF is designed to return three times the amount that the value of gold falls. So if the price of gold fell 10%, an investment in this fund would increase approximately 30%.
However, on a more basic level, these investments have fared differently because they invest in fundamentally different assets. Some of these investments gain exposure to gold or some other precious metal by actually purchasing the metal and storing it in vaults. This is the most obvious and simple way for a fund to invest in these assets. Others are investing not in gold, but in mining companies that mine gold. These funds theorize that those types of companies should increase or decrease in value with the changes in value of the product they produce; namely gold, silver, or copper. However, there are some flaws in this analysis, as most experts agree that on a long time line, the share price of these companies will not keep up with the value of the metal they produce.
Finally, some, if not most of, these funds gain their exposure to the target metal by buying futures contracts on them. That means that the fund buys the right to purchase gold or some other metal at a fixed price at a fixed time in the future. However, instead of ever collecting the gold, these funds sell their right to purchase the gold before it comes due and instead purchase a new future, or right to buy. In doing so, the fund avoids the expense of ever actually having to process and handle gold, while still being affected in value by changes in the price of gold.
Recently, the funds which are based upon gold mining companies have fared the poorest. Not only have they lose value as the price of gold has plummeted, but the share price of those companies also suffered because equity markets worldwide have been weak. However, none of these funds, other than the inverse funds, have performed well. One of the funds, Direxion Daily Gold Miners Bull 3x Shares ETF, lost almost 85% of its value over the last twelve months. Many others lost half their value or more.
The moral of the story is that many brokers have been pushing their clients into investing in these or similar securities, without the clients being aware of the fact that these investments can be, and have been, very high risk investments which can end up wiping out an investor’s life savings in a matter of months. If you have invested in these or other investments in precious metals based upon your broker’s recommendation, contact the law firm Shepherd, Smith, Edwards & Kantas LLP for a free evaluation of a potential claim to recover some or all of the investment that you lost. All communications will be kept strictly confidential and you will not be billed in any way for a consultation.