Frenzy for precious metals extends to ETFs

Demand for precious metals ETFs has proven robust this year as investors seek alternative safe havens

Frenzy for precious metals extends to ETFs

As recession fears push Treasury bond prices to record highs, investor demand is growing for other haven assets — including precious metals.

Last week, spot gold prices surged as high as US$1,557 and 20% year-to-date. Silver, palladium, and platinum are also undergoing parallel growth stories, with silver at a three-year high and platinum at its richest price in one and a half years. Palladium is also trading near record highs as tightened emissions standards for gasoline-powered cars stoke demand.

The investor rush has also boosted inflows into precious metals ETFs this year, particularly as bond yields around the world hit rock-bottom levels. “Plunging yields make precious metals increasingly attractive as stores of value, reducing the opportunity cost of holding them,” noted contributor Sumit Roy.

That shift in attitudes has manifested in the form of billions of dollars flowing into precious metals funds. That includes the SPDR Gold Trust, which has picked up a reported US$4.3 billion this year; the iShares Gold Trust (IAU), which collected US$2.2 billion; and the iShares Silver Trust (SLV), which took in US$1.2 billion.

Hundreds of millions more have gone to smaller competitors, including US$423 million into the SPDR Gold MiniShares Trust (GLDM); US$208 million into the GraniteShares Gold Trust (BAR); and US$102 million into the Aberdeen Standard Physical Platinum Shares ETF (PPLT).

“Riding on the coattails of the precious metals rally are the miner ETFs,” Roy said, noting how they have turned around to easily outpace the gains in metals prices this year.

Both the iShares MSCI Global Gold Miners ETF (RING) and the Sprott Gold Miners ETF (SGDM) have gained more than 51% so far this year, while the VanEck Vectors Gold Miners ETF (GDX), the Global X Gold Explorers ETF (GOEX), the ETFMG Prime Junior Silver ETF (SILJ) and the VanEck Vectors Junior Gold Miners ETF (GDXJ) have advanced more than 41% each.

Still, ETF investors seem to be unimpressed by those gains. According to Roy, gold miner ETFs have shed billions in assets this year, with GDX and GDXJ suffering the worst outflows of US$2.4 billion and US$1.1 billion, respectively. He pointed to the mining industry’s reputation for poor governance and abysmal long-term performance as possible reasons for investor apprehension.

“In fact, investors are so skeptical of the gold miner rally that they’ve plowed millions into leveraged, inverse gold miner ETFs,” Roy said. He cited the US$491 million in year-to-date inflows into the Direxion Daily Gold Miners Index Bear 3x Shares (DUST), as well as the US$182 million into the Direxion Daily Junior Gold Miners Index Bear 3x Shares (JDST).

In contrast, counterpart products for bullish positioning have experienced outflows in the hundreds of millions. That includes the Direxion Daily Junior Gold Miners Index Bull 3x Shares (JNUG) and the Direxion Daily Gold Miners Index Bull 3x Shares (NUGT), which have shed US$488 million and US$974 million this year.

Some mining ETFs have attracted modest interest: the Global X Silver Miners ETF (SIL), the iShares MSCI Global Gold Miners ETF (RING), and the ETFMG Prime Junior Silver ETF (SILJ) have registered year-to-date inflows ranging from US$45 million to US$100 million.


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