Geoff Howie of SGX looks at investor demand for gold and other commodity ETFs, and explains some of the issues and buying considerations in this space.
Date: Aug 2011
Traders are also able to take pair trading, arbitrage-type opportunities, for example by trading gold and at the same time taking a counter view on another commodity.
Other commodity ETFs
Howie said he expects to see global demand for commodity benchmarks, whether this is an industrial play such as copper or a soft consumer play such as cotton.
This is inevitable, he said, given the growth in developing Asia compared with developed markets. What is driving the growth is industrialisation and economic modernisation, he explained, within which commodities are a very important variable – from both a demand and a supply-side point of view.
Issues with commodity ETFs
When investing in commodity ETFs, however, Howie said investors need to make sure that the ETF suits their risk profile.
Just because there might either be a commodities rally or downturn shouldn’t mean that traders should be encouraged to enter the market, he said.
Instead, they need to be objective and ensure the ETF is congruent with their risk appetite and that they also fully understand the underlying market and the ETF structure.
At the same time, individual investors can learn from institutional investors in terms of not always looking for leveraged access to the commodity markets via a futures or over-the-counter product.
According to Howie, the demand for ETFs is there, and the demand for commodities is likely to remain strong given the state of the global economy and the developing nature of Asia.