"How Long Will Gold and Silver Keep Rising? Investors Flock to ETFs and ETNs" [Investment Barometer]

Gold Surpasses $5,200, Silver Exceeds $110
Gold and Silver Prices Hit All-Time Highs, Boosting ETF and ETN Returns
Silver Futures ETN Returns Exceed 100% This Year
ACE KRX Gold Spot ETF Sees 443.5 Billion Won Inflows in 2024

As gold and silver prices continue to reach all-time highs day after day, related Exchange Traded Funds (ETFs) and Exchange Traded Notes (ETNs) are also experiencing significant activity. As a result, more investors are choosing to ride the rise in gold and silver prices through ETFs or ETNs rather than purchasing physical gold directly.

Gold and silver prices are soaring, leading to increased popularity of related exchange-traded funds (ETFs) and exchange-traded notes (ETNs). Reuters Yonhap News

Gold and Silver ETFs and ETNs Deliver High Returns Since the Beginning of the Year

According to the Korea Exchange on January 29, the KODEX Silver Futures (H) ETF has risen by 53.51% since the start of the year. In addition, ACE Gold Futures Leverage (Synthetic H) gained 42.11%, TIGER Gold & Silver Futures (H) 23.30%, and TIGER KRX Gold Spot 21.88%, with gold- and silver-related ETFs posting strong returns.

Among ETNs, silver futures ETNs dominated the top ranks in returns. The Meritz Leverage Silver Futures ETN (H) rose by 121.54%, marking the second-highest return among all ETNs. Shinhan Leverage Silver Futures ETN (H) gained 120.41%, Samsung Leverage Silver Futures ETN (H) 120.39%, KB Leverage Silver Futures ETN (H) 120.33%, N2 Leverage Silver Futures ETN (H) 118.73%, Korea Investment & Securities Leverage Silver Futures ETN 117.61%, and Mirae Asset Leverage Silver Futures ETN B 116.77%. Seven out of the top ten ETNs in terms of returns were silver futures ETNs. Other gold-related ETNs also recorded notable returns: Mirae Asset Leverage KRX Gold Spot ETN 47.93%, N2 Leverage Gold Futures ETN (H) 43.33%, KB Leverage Gold Futures ETN (H) 43.15%, Meritz Leverage Gold Futures ETN (H) 43.11%, and Samsung Leverage Gold Futures ETN (H) 42.62%.

The reason gold and silver ETFs and ETNs are delivering such high returns is that gold and silver prices are continuously breaking record highs. On this day, the international gold price surpassed the 5,200-dollar mark for the first time ever. The spot price of silver also exceeded 110 dollars for the first time and continues to rise.

Driven by these high returns, funds are flowing into gold and silver ETFs. According to Koscom ETF Check, the ACE KRX Gold Spot ETF attracted 443.5 billion won in inflows since the beginning of the year. The TIGER KRX Gold Spot ETF saw 163.9 billion won in inflows, while the KODEX Silver Futures (H) ETF attracted 326.8 billion won.

According to Korea Investment Management, the net asset value of the ACE KRX Gold Spot ETF, the nation’s first gold spot-type ETF, surpassed 4.5 trillion won as of January 26. After surpassing 4 trillion won on January 12, it grew by more than 600 billion won in just 10 trading days. A representative from Korea Investment Management explained, "This is due to the combination of strong global gold prices and growing demand for portfolio diversification, which has led to a steady inflow of individual investor funds. In fact, individual investor inflows have continued every day except one since the beginning of the year, with a cumulative net purchase of 140.4 billion won by individuals. Including net purchases by individual investors, the total inflow for the year stands at 388.9 billion won, the largest among the 26 domestic commodity ETFs listed in Korea."

The net asset value of the KODEX Silver Futures (H), the only silver-related ETF listed on the domestic stock market, reached 1.3859 trillion won as of January 27, more than doubling from less than 600 billion won at the end of last year in less than a month.

ETFs and ETNs Share Similarities but Also Have Key Differences Investors Should Consider

As investing in gold and silver becomes easier through ETFs and ETNs compared to buying physical bullion, investor interest is rising. However, since ETFs and ETNs have distinct characteristics, it is important for investors to clearly understand the nature and differences of these products before investing.

While both ETFs and ETNs are listed on the stock exchange and can be traded like stocks, ETFs are issued by asset management companies that hold assets in trust institutions, whereas ETNs are issued based on the credit of securities firms. As a result, ETFs carry virtually no credit risk, but ETNs, being issued on the credit of securities firms, are subject to credit risk equivalent to that of unsecured, uncollateralized corporate bonds in the event of issuer default. Additionally, ETNs are classified as derivative-linked securities, so even if the underlying assets are similar to those of ETFs, they cannot be included in retirement pension products. Under current regulations, derivative-linked securities are excluded from retirement pension investments because they may incur a principal loss rate exceeding 40%.

There are also differences regarding maturity. ETFs have no maturity date, while ETNs have maturities ranging from at least one year to no more than twenty years. In terms of the number of constituent stocks, ETFs require at least ten, while ETNs require at least five for domestic equity types and at least three for overseas equity types. Regarding asset management restrictions, ETFs face relatively more constraints, whereas ETNs are managed more flexibly.

ETFs may experience tracking errors, where returns deviate from the underlying index due to management fees and trading costs incurred during operation. In contrast, ETNs do not have tracking errors, as the issuer promises to pay the exact index return.