Deutsche offers new ETCs with gold collateral

Deutsche Bank has listed a range of 10 new ETCs on the London Stock Exchange, using gold or precious metals as collateral.

The firm's latest db ETC products based on non-precious metals are backed by physical gold, to fully collateralise the swap exposure that delivers the return of the underlying index.

Deutsche says gold offers a range of benefits as collateral. It is negatively correlated with financial distress, as gold prices historically rise in periods of equity market volatility and risk aversion.

The gold is stored in secure vaults and offers value transparency as prices are published daily. Deutsche says gold is also easy to liquidate as a form of collateral, in case of counterparty default.

The latest range of gold-backed ETCs comprises the db S&P GSCI, Commodity Booster, S&P GSCI Agriculture, the Agriculture Booster, S&P GSCI Energy, the Energy Booster, the Natural Gas Booster, the Industrial Metals and Industrial Metals Booster, and the WTI Crude Oil Booster.

The remaining products include the db Physical Gold and Physical Silver, which are collateralised with their respective precious metals.

The Booster ETCs track Deutsche's Optimum Yield commodity indices, which are designed to minimise costs, or maximising gains, from the rolling of commodity futures contracts.

Deutsche explains when commodities futures contracts are rolled over, by selling a maturing contract and purchasing a new one, there can be a divergence between the spot price and the future price of a commodity, due to the costs or gains incurred with the rolling process.

The Booster indices have the same commodity weights as the S&P GSCI index, although the underlying futures are rolled differently. Futures contracts that expire in the next 13 months are eligible for selection, in order to maximise the roll return.

In the last five years, this method tracked the spot prices better than traditional techniques, Deutsche says.

According to research by the bank, gold now comprises 80% of the global commodity ETP sector, representing a 16% increase from the first quarter of this year.

The ETCs have total expense ratios of 0.45% per annum, except for the gold ETC at 0.29%.