Commodity ETCs

Exchange Traded Commodities (ETCs) track the performance of an underlying physical commodity or commodity index allowing investors to gain direct exposure to the underlying without the need to trade futures or take physical delivery of the commodity.  Aside from the underlying asset, ETCs are very much like Exchange Traded Funds (ETFs)  and are traded and settled on ASX, just like shares, making them both accessible and affordable.

ETCs are open-ended securities meaning new units may be created and existing units may be redeemed in the primary market based on market demand by the market maker.  This unique feature helps ensure the market price of the ETC tracks closely to its Net Asset Value (NAV).  It also creates an arbitrage opportunity should the market price of the ETC move away from its NAV.

ETCs replicate the performance of the underlying commodity or commodities index because the issuing entity would have a direct investment in the underlying asset or the commodity derivative contract.  As such, the investment value of a portfolio would generally rise and fall in direct proportion to the price of the underlying.  This broadens the investment opportunities for potential investors because for many commodities, no listed companies exist. 

Further, in certain circumstances ETCs may be a useful hedging tool against currency risk.  ETCs are traded and settled on ASX in Australian dollars.  For underlying commodities which are valued in a foreign currency, fluctuations in the exchange rate can affect the value of the portfolio.  As such, a weak Australian dollar will increase the value of investments held in non-Australian dollars.  On the other hand, if the Australian dollar rises, the value of investments held in non-Australian dollars will fall.

The first ETC to launch on ASX was an exchanged traded gold product in 2003.  There are now a number of ETCs currently quoted on ASX.

The table below lists the ASX code of each ETC and its respective underlying commodity.

ASX Code Metal Type Metal Entitlement
GOLD GOLD 0.098062706 fine troy oz (PDF 112KB)
ETPMAG Silver 1.00 troy oz (PDF 102KB)
ETPMPT Platinum .10 troy oz (PDF 102KB)
ETPMPD Palladium .10 troy oz (PDF 102KB)
ETPMPM PM Basket .04 fine troy oz gold, 1.20 troy oz silver, 0.01 troy oz platinum and .02 troy oz palladium (PDF 103KB)

Market Making

To help ensure liquidity in the silver, platinum, palladium and precious metal basket ETCs, two companies, Citigroup and Susquehanna (please contact Mitchell Tourle at Susquehanna) have been contracted as Market Makers. When the Market Makers consistently achieve two-sided markets in the silver, platinum, palladium and precious metal basket of ETCs within the maximum spread and the minimum quantity of precious metals as tabled, they receive fee rebates

Bid Price in $AUD for Shares Maximum Spread Minimum Quantity
$25< 15c 1000
>$25-$50 25c 500
>$50-$100 65c 100
>100-$150 100c 50
>150-$200 125c 50
>$200-$250 150c 50
>$250 200c 50