Commodity ETF
Rules, protection and tax below are for Brazil.
What it is
An ETF that tracks a commodity price. Gold and silver funds usually hold the metal in a vault, so the fund is as good as the bullion. Funds for oil, gas, grains and metals that cannot sit in a vault use futures contracts instead, and rolling those contracts month after month carries a cost that can turn a flat price into a steady loss.
Commodities pay nothing. A company earns profits, a bond pays interest, a property earns rent; a bar of gold earns nothing and costs money to store. Its return is purely what the next person will pay, which over a century has roughly kept pace with inflation and no more.
People hold gold as insurance against crises and currency collapse, and that insurance has sometimes paid. As the core of a plan it has a poor record.
How it works
- A physically backed fund buys and stores the metal; each share is a claim on a fraction of it.
- A futures-based fund holds contracts and rolls them before expiry, paying or receiving the gap between months.
- The ongoing charge covers storage, insurance or contract costs.
- You buy and sell on the exchange like any share.
The honest pros and cons
For
- Direct exposure to a price that sometimes rises when everything else falls.
- Physically backed metal funds are simple and cheap to hold.
- A small holding can smooth a portfolio's worst moments.
Against
- No income, ever; the return is purely price.
- Futures-based funds bleed value from contract rolling, sometimes several percent a year.
- Commodity prices are volatile and can go nowhere for a decade.
- Tax treatment can be unusual; some countries tax metal funds as collectibles.
Getting it in Brazil
not researchedWherever you are
- Decide why: insurance against disaster is a reason for a small gold holding; a growth plan is not.
- For metals, choose a physically backed fund and check where the metal is stored and audited.
- For anything else, read how the fund rolls contracts and what it has cost historically.
Go deeper
Also called
gold ETF, commodity tracker, ETC, exchange traded commodity
Often confused with
- Stock index ETF: A fund traded on an exchange that copies a stock market index at low cost.
- Futures: A binding contract to buy or sell something at a set price on a future date, traded with borrowed exposure.
- Physical gold: Gold you own directly as coins or bars, or through a bank accumulation plan.