Recession fears are pushing Treasury bond prices to record highs this year, but they aren’t the only safe havens rallying. Precious metals are also on the upswing, buoyed by strong demand from ETF investors.
This week, spot gold prices spiked as high as $1,557, a six-year high, and up more than 20% year to date. Silver, palladium and platinum are all up by similar amounts this year also—though none of them quite has the safe haven reputation of gold.
Silver last found itself at a three-year high and platinum at a 1 ½-year high. Palladium, meanwhile, is trading near record highs amid shortages caused by tightening emissions standards for gasoline-powered cars.
Precious Metals Returns (YTD)
Alternative Safe Havens
Demand for precious metals ETFs in 2019 has been robust as investors seek alternative safe havens to Treasuries and other government bonds. Yields around the world have fallen to rock-bottom levels and a third of worldwide investment-grade debt—$17 trillion worth—is yielding less than zero, according to Bloomberg.
Plunging yields make precious metals increasingly attractive as stores of value, reducing the opportunity cost of holding them.
That thesis is playing out in precious metals price action and precious metals ETF flows. So far this year, billions have flowed into this space. The SPDR Gold Trust (GLD) has picked up $4.3 billion; the iShares Gold Trust (IAU) gathered $2.2 billion; and the iShares Silver Trust (SLV) took in $1.2 billion.
Hundreds of millions more entered smaller competitors, like the SPDR Gold MiniShares Trust (GLDM), the GraniteShares Gold Trust (BAR) and the Aberdeen Standard Physical Platinum Shares ETF (PPLT).
According to Bloomberg, ETFs now hold the most silver and platinum they ever have, while the amount of gold in ETFs is only 3 million ounces off its record from 2012.
|GLD||SPDR Gold Trust||4,346|
|IAU||iShares Gold Trust||2,160|
|SLV||iShares Silver Trust||1,164|
|GLDM||SPDR Gold MiniShares Trust||423|
|BAR||GraniteShares Gold Trust||208|
|PPLT||Aberdeen Standard Physical Platinum Shares ETF||102|
|SGOL||Aberdeen Standard Physical Swiss Gold Shares ETF||93|
|DGL||Invesco DB Gold Fund||57|
|AAAU||Perth Mint Physical Gold ETF||52|
|DBP||Invesco DB Precious Metals Fund||8|
Investors Not Buying Into Miner Rally
Riding on the coattails of the precious metals rally are the miner ETFs. This perennially beat-up group has seen a reprieve this year, and easily outpaced the gains in metals prices themselves.
The iShares MSCI Global Gold Miners ETF (RING) and the Sprott Gold Miners ETF (SGDM) each gained more than 51% so far this year. At the same time, 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) gained more than 41% apiece.
Yet even those sharp gains haven’t aroused the interest of ETF investors. Gold miner ETFs shed billions in assets this year, led by a $2.4 billion outflow from GDX and a $1.1 billion outflow from GDXJ.
Perhaps investors haven’t been seduced by this year’s rally in miners because of the industry’s reputation for poor governance and abysmal long-term performance. Case in point: Since GDX’s inception in May 2006, the fund is down 16.9% compared with a positive 124.6% return for GLD.
In fact, investors are so skeptical of the gold miner rally that they’ve plowed millions into leveraged, inverse gold miner ETFs. The Direxion Daily Gold Miners Index Bear 3x Shares (DUST) and the Direxion Daily Junior Gold Miners Index Bear 3x Shares (JDST) have year-to-date inflows of $491 million and $182 million, respectively.
The equivalent products for bullish positioning—the Direxion Daily Junior Gold Miners Index Bull 3x Shares (JNUG) and the Direxion Daily Gold Miners Index Bull 3x Shares (NUGT)—registered outflows of $488 million and $974 million, respectively, in the same period.
That said, a few miner ETFs have seen some modest interest from investors this year. The Global X Silver Miners ETF (SIL), the iShares MSCI Global Gold Miners ETF (RING), the ETFMG Prime Junior Silver ETF (SILJ), the iShares MSCI Global Silver Miners ETF (SLVP) and the Sprott Gold Miners ETF (SGDM) have year-to-date inflows ranging from $26 million to $100 million.
That’s not bad, but not great. The big money is clearly shunning miners in favor of bullion-backed ETFs.
PM Miner ETF Flows (YTD)