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What is an ETC?

An exchange-traded commodity gives you exposure to gold, silver, oil or another raw material through something that trades like a share. It looks like an ETF and sits next to them on your broker's screen — but structurally it is not a fund at all, and that difference is worth understanding before you buy one.

By Nathan Wickham-Hurd · Founder, Oak Growth · First-class Economics & Finance, MBA · Last reviewed July 2026

The plain definition

An exchange-traded commodity gives you exposure to something like gold, silver or oil through a security that trades on an exchange like a share. You get the price movement without storing bullion or handling barrels of crude.

So far, that sounds exactly like an ETF. The names are similar and brokers list them side by side. But structurally they are different things, and the difference is the whole reason this page exists.

An ETF is a fund. An ETC is an IOU.

This is the point almost every explanation skips.

An ETF is a fund that owns assets. An ETC is a debt security issued by a company, secured on collateral. BlackRock states it plainly in its own literature: its physical ETCs are "neither funds nor exchange traded funds".

When you buy an ETF you own a slice of a fund, and the fund owns the shares. When you buy an ETC you own a note — a debt obligation issued by a special-purpose company, backed by collateral held for that purpose.

The reason it is structured that way is regulatory. European fund rules require diversification, and a product tracking one commodity cannot diversify by definition. So issuers use a debt structure instead. That is not a trick, but it does mean the fund-level protections you might assume are present are not.

Physically backed or synthetic

Physically backed. The issuer buys and stores the actual metal. Your note is secured on specific bars sitting in a vault.

Synthetic. The issuer enters a swap with a bank that agrees to pay the commodity's return. No metal exists anywhere in the arrangement — you are relying on the bank honouring the contract.

Physical backing is only practical for precious metals. Nobody vaults crude oil or natural gas, so energy and agricultural ETCs are generally synthetic or built on futures contracts — which brings its own complication, since a futures-based product can drift from the spot price it appears to track.

Check which one you are buying. Two products tracking the same metal, priced almost identically, can be built entirely differently. The factsheet will say — look for "physically backed" or "allocated".

A real example

The iShares Physical Gold ETC (LSE: SGLN) is the largest gold ETC in Europe, with roughly €30bn of assets. Its structure is unusually well documented, which makes it a useful thing to look at.

What it is. A series of secured, metal-linked debt securities issued by iShares Physical Metals plc — not a fund.

What backs it. Allocated gold bars meeting London Bullion Market Association Good Delivery standards, held by the custodian JPMorgan in London, with State Street as trustee.

Your claim. Each security carries a defined metal entitlement — a specific quantity of gold backing that note, published daily.

Cost. An ongoing charge of 0.12% a year, deducted from the metal itself, so your entitlement shrinks very slightly over time.

Launched April 2011, domiciled in Ireland, valued against the LBMA gold price. Figures as at July 2026.

What "limited recourse" means for you

Read an ETC prospectus and you will find the phrase limited recourse. BlackRock puts it directly: the securities are limited recourse bonds, payable only from the underlying secured property, and if that property is insufficient the outstanding claims remain unpaid.

In plain terms: your claim extends to the collateral and no further. If the gold is there, you are fine — that is the point of allocated physical backing, and it is why serious issuers publish custodian and entitlement details. But you are a secured creditor of a company rather than a part-owner of a fund, and those are genuinely different positions.

This is not a reason to avoid ETCs. It is a reason to know what you hold, and to prefer physically backed products from large issuers with named custodians over synthetic ones you have not examined.

Where an ETC fits

Commodities behave differently from businesses. A company can grow earnings, widen a moat and compound value over decades. A bar of gold does nothing — it will be the same bar in fifty years. Its price can rise, but it produces no cash and cannot be valued by discounting future cash flows, because there aren't any.

That is why Buffett has been consistently uninterested in gold, and it is worth understanding before treating a commodity holding as an investment in the same sense a share is. Most people who hold one are hedging or diversifying rather than compounding.

Commodities alongside 1,000 companies

Oak Growth tracks gold, oil and the major commodities beside intrinsic value, moat, management and financial strength scores for 1,000 businesses across nine markets.

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Common questions

What is an ETC in simple terms?

An exchange-traded commodity is a security that tracks the price of a commodity such as gold or oil and trades on an exchange like a share. Unlike an ETF it is not a fund — it is a debt security issued by a company and backed by collateral.

What is the difference between an ETF and an ETC?

An ETF is a fund that owns assets on your behalf. An ETC is a debt security issued by a special-purpose company, secured on collateral such as allocated gold bars or a swap contract. The structure differs because European fund rules require diversification, which a single-commodity product cannot provide.

Are ETCs safe?

Physically backed ETCs from large issuers hold allocated metal with a named custodian, which addresses most of the structural concern. But they are limited recourse securities — your claim extends only to the collateral, and if that is insufficient the balance goes unpaid. Synthetic ETCs rely instead on a bank honouring a swap. The value of any commodity holding can fall as well as rise.

What does physically backed mean?

The issuer holds the actual metal in a vault, and your security is secured on specific bars with a stated entitlement. The alternative is synthetic, where the issuer uses a swap with a bank and no metal exists in the structure at all.