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Exchange-Traded Commodities (ETCs) allow you to gain exposure to the performance of a commodity, such as gold, oil or other raw materials, directly through your investment account without needing to buy or store the commodities yourself.

ETCs are debt instruments issued by a financial institution (the issuer), which means you are exposed to the issuer’s credit risk. Some may be physically backed, while others are synthetically replicated (find out what this means below).

ETCs can help diversify your portfolio by introducing exposure to commodities. However, the value of an ETC rises and falls with the price of the underlying commodity, which may potentially be highly volatile.

A physically backed ETC means that the issuer physically holds the underlying commodity, such as gold bars, and its value tracks the commodity’s price. While this reduces counterparty risk because the asset is held in custody, it is not entirely eliminated.

A synthetic ETC means that the issuer does not hold the underlying commodity, but instead uses derivatives or other financial instruments to replicate its performance. This introduces additional counterparty risk, as returns depend on the issuer’s financial obligations.

Some synthetic ETCs may be leveraged and/or inverse and carry higher risk. Read more about these in this FAQ.

ETCs typically don’t pay out dividends.

ETCs prices may not always correlate precisely with the underlying index, particularly during times of market stress or issuer-specific credit events (tracking error).

Leveraged and inverse ETCs rebalance their exposure daily, which introduces compounding risk and can cause their returns over longer periods to differ significantly from the target multiple of the underlying index, making them ill-suited for a buy-and-hold strategy.