Not every fund offering metal exposure holds metal. Some hold futures contracts, and the difference produces returns that can diverge noticeably from the spot price over time.
Futures are cheaper to hold than bars
A futures contract requires margin rather than the full value of the metal, and it incurs no storage, insurance or custody cost.
The remaining capital can be held in short term instruments, which generates a return that partly offsets the fund's expenses.
For funds tracking metals that are bulky or costly to store, this structure is significantly more practical than holding the physical commodity.
Contracts expire and must be replaced
Every futures contract has a delivery date, and a fund that does not intend to take delivery must close its position and open one in a later month.
This roll happens on a schedule, usually spread over several days to avoid moving the market against the fund's own position.
The price of the new contract is rarely the same as the one being closed, and that difference is where the divergence originates.
The shape of the curve determines the cost
When later contracts cost more than nearer ones, each roll buys fewer contracts for the same money, and the fund's position shrinks slightly.
Repeated over many cycles this produces a persistent drag, so the fund underperforms the spot price even when its tracking is working exactly as designed.
When the curve is inverted the effect reverses and the roll adds to returns, but that condition is less common in precious metals over long periods.
Leverage multiplies the drift
Some products aim to deliver a multiple of the metal's daily movement, and they reset their exposure at the end of each trading day to maintain that multiple.
Daily resetting means returns over longer periods depend on the path the price took rather than only on where it ended.
In a volatile but directionless market this can produce losses in both the long and short versions of the same product simultaneously.
The structure should match the holding period
For short term trading, futures based products are efficient, liquid and closely tied to daily price movement.
For holdings measured in years, accumulated roll cost can exceed the storage cost a physically backed fund would have charged.
The fund documents state which structure is used, and that single fact predicts more about long term tracking than any recent performance figure does.