FSA warned commodity-backed ETFs may be the next bubble

Exchange traded funds (ETF) that are backed by commodities could be the next financial bubble, metal traders have warned the Financial Services Authority (FSA).

A report in this morning’s Telegraph says several metal traders and experts have written to the regulator claiming ETFs also represent a bad deal for investors.

Banks including Deutsche Bank, Goldman Sachs and JPMorgan are planning physical ETF launches. They differ from their synthetic cousins in that investors’ cash is used to buy actual metals such as gold, copper or silver. (article continues below)

One trader told the Telegraph: “Metals like copper are in intense demand. By buying futures contracts, investors have never impacted the physical cost or supply of copper. But allowing investors to hoard physical supplies is the equivalent of allowing investors to sit on warehouses of wheat while Tesco is short of bread.”