Funds and etfs

Bond Refugees Move into Silver & Gold ETFs

Silver and gold prices have been soaring since the beginning of the year; Gold prices have risen more than 25%, while silver prices have soared nearly 42%. According to many analysts, investors not only see gold as a safe-haven asset during volatile times, but the current environment has made bonds a risky bet. Low yields have failed to compensate for the rising risk of an interest rate hike that could send prices lower – pushing investors into metals.

“The amount of capital that is now looking for more-attractive alternatives [to bonds] is really quite staggering,” said John Ciampaglia, EVP and Head of ETFs at Sprott, in a WSJ interview. “Gold has been a big beneficiary.”

According to ETFdb, silver and gold ETFs have been among the top performing sectors with returns in excess of 100% in many cases.

Some of the most popular silver ETFs include:

  • iShares Silver Trust ETF (NYSE ARCA: SLV) – 41.9%
  • Ultra Silver ETF (NYSE ARCA: AGQ) – 90.3%
  • ETFS Physical Silver Shares ETF (NYSE ARCA: SIVR) – 42.3%

Some of the most popular gold ETFs include:

  • SPDR Gold Shares ETF (NYSE ARCA: GLD) – 25.7%
  • iShares Gold Trust ETF (NYSE ARCA: IAU) – 26%
  • ETFS Physical Swiss Gold Shares ETF (NYSE ARCA: SGOL) – 25.7%

Many gold and silver mining companies have experienced similar upside. In general, these companies tend to see greater price appreciation than the underlying commodity, but tend to suffer greater losses during a downturn. The VanEck Vectors Gold Miners ETF (NYSE ARCA: GDX) is trading up more than 120% so far this year, for example, despite the mere 25% increase in underlying physical gold prices over the same time-frame.

While poor corporate earnings could boost gold and silver prices, some analysts believe that upside could be capped by upcoming Federal Reserve rate decisions. A move to increase interest rates could result in lower bond prices and higher yields, which could draw capital away from gold and silver and back into the bond markets. The futures market pegs the probability of such a rate hike at more than 50% before the end of the year.

Investors interested in gold and silver ETFs may want to take a second look at the market’s fundamentals before buying into these assets given these potential downside risks.