DWS launches new physical gold and platinum ETCs

Apr 30th, 2020 | By | Category: Commodities

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DWS has launched new physically backed exchange-traded commodities in Europe providing exposure to movements in the spot price of gold and platinum.

Each ETC is fully backed by gold or platinum LBMA bars stored in London vaults.

Each ETC is fully backed by physical metal stored in London vaults.

The firm already offers gold and platinum ETCs which collectively house nearly $1.4 billion in assets under management.

The introduction of newer versions of precious metal ETCs that sit alongside existing products is typically a response to client demand for a more accessible entry point, in terms of a reduced metal entitlement per share, an alternative domicile, or a guarantee of responsibly sourced metal, something which can’t currently be assured by some of the larger products with old stocks of metal.

An ulterior, somewhat less-scrupulous motive for launching a new, self-competing product can include a desire by an issuer to compete (for new inflows) on price without sacrificing fee revenue earned on a larger, existing product.

In the case of DWS, while some of the above reasons may have influenced product design, it appears the new products are part of the issuer’s platform reconfiguration as it completes its separation from Deutsche Bank, from which it was spun out in March 2018.

In a statement, the issuer said: “DWS has brought a number of operations in-house in recent years as it becomes established as a stand-alone ETF and ETC provider. The new gold and platinum ETCs are part of this process, as they have been launched from a new DWS owned and operated issuance platform.”

Gold

The newly launched Xtrackers IE Physical Gold ETC is domiciled in Ireland and has listed on London Stock Exchange in US dollars (XGDU LN) and on Xetra in euros (XGDU GY). It is 100% backed by LBMA (London Bullion Market Association) physical gold bars stored in secure London vaults.

The ETC comes with an expense ratio of 0.18% which is one basis point cheaper than the $10.7bn Invesco Physical Gold ETC (SGLD LN) and the $11.0bn iShares Physical Gold ETC (SGLN LN).

Also in this ballpark is the recently launched Royal Mint Physical Gold ETC (RMAU LN), priced at 0.22% and offering a differentiated approach. Its gold is held in the Royal Mint’s vault in South Wales, outside of the mainstream financial infrastructure. Plus it is thought to be the only ETC to hold wholly responsibly sourced gold.

The accolade of Europe’s cheapest gold ETP, however, rests with Amundi after the firm cut the expense ratio for the $2.6bn Amundi Physical Gold ETC (GOLD FP) to just 0.15% last month.

DWS’s existing gold ETC – the Xtrackers Physical Gold ETC (XGLD LN) – houses over $1.3bn in AUM and has an expense ratio of 0.25%. It is domiciled in Jersey and has a much larger metal entitlement per share than the new product.

Investing in gold has historically contributed several portfolio benefits. The precious metal acts as a hedge against inflation and offers diversification potential due to its low correlation with traditional asset classes.

It is also a perceived safe haven, providing a degree of portfolio resilience during periods of market uncertainty. This factor led to strong demand for gold investment when equity markets were reeling from the impact of the coronavirus outbreak – the spot price of gold is up 10.7% year-to-date (28 April 2020).

Platinum

The Xtrackers IE Physical Platinum ETC is domiciled in Ireland and has listed on LSE (XPPT LN) and Xetra (XPPT GY) in US dollars. It is also 100% physically backed, owning LBMA physical platinum bars stored in London.

The ETC comes with an expense ratio of 0.38%.

Investors can potentially access cheaper exposure to platinum through the $40m UBS ETF (CH) – Platinum (PTUSA SW) or the $50m GAM Precious Metals – Physical Platinum ETF (JBPLUX SW). Both are listed on SIX Swiss Exchange and come with expense ratios of 0.35%.

DWS’s existing platinum ETC – the Xtrackers Physical Platinum ETC (XPLA LN) – houses roughly $40m in AUM and has an expense ratio of 0.45%. It is domiciled in Jersey and has a much larger metal entitlement per share.

Platinum, a key component in catalytic converters, is expected to be supported in the long-term by increasing regulation around NOx motor vehicle emissions.

The metal, which has experienced a structural undersupply for years, was also expected to receive a boost from growing deficits driven by a coronavirus-induced shutdown of the mining industry in South Africa. The Southern African state is responsible for roughly 70% of global platinum production.

However, this has not come to pass, and the spot price of platinum is down 21.3% YTD. While gold benefitted from its safe-haven status during the crisis, platinum has been negatively affected, reflecting how industrial demand has slipped as automakers struggle with broken supply chains and production shutdowns.

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