We know you are all keen readers of our updates, and wouldn’t possibly delete them as soon as they hit your inbox? Come on now, don’t lie to us, we will find out 🤨 Anyway, if you have taken even a passing glance at our commentaries over the last year or so, it won’t have escaped your attention that precious metals are in a multiyear rally. Similarly, companies involved in gold and silver mining have become extremely profitable, and their shares have performed even better than the metals.
Gold and silver spot prices are up about 40% year to date in US dollar terms. Not too shabby. However, the Vaneck Gold Miners ETF (GDX) which tracks the overall performance of companies involved in the gold mining industry, is up 99% since the start of the year. The GDX is a highly liquid, $2billion ETF, and therefore a good proxy for the sentiment towards gold miners.
Now based on this information, you would imagine that investors have been piling in to the GDX fund all year, right? Right?
NOPE!
Source: ETF.com
Year to date, the net flows into the GDX ETF (money in, less money out) have been $3.2 billion in OUTFLOWS.
As you can see by the red bars on the chart, investors have been steadily selling shares of GDX all year. Up until last month, there had only been a few brief periods of net inflows to the fund, as indicated by the green bars.
This would suggest that retail investors are not buying into the gold miners story yet, and so far, it has been institutional investors driving this rally by buying individual gold mining equities (as opposed to ETFs). This has typically been specialist commodity investors rather than generalist equity investors… so far at least.
So, what have the retail investors been buying? Cryptocurrencies and tech stocks have still been getting lots of attention, and given the volatility we have seen this year flows into money market funds and cash are still rising. And while they may not be buying gold mining shares, if we look at fund flows into $110bn SPDR Gold Trust then it is a different story. This ETF, which invests in physical bullion, has seen consistent inflows this year.
Source: ETF.com
Despite such a strong run year to date, the case for investing for gold and silver still looks very bullish. Some of the factors include:
- Growing signs of a potential US recession
- Continued weakness in the US dollar
- Expectations that the Fed will cut interest rates
- Stubborn inflation
- Geopolitical concerns
- Trump appointing a political stooge as the next Fed chair.
This rally in precious metals has been flying under the radar, and the asset class is still under-owned in most investors’ portfolios. It is a stealth bull market that still has a lot of potential. Central banks started accumulating more gold in 2022 and since October 2023 the price has steadily risen, doubling from $1,800/oz to $3,650/oz. And where the gold price leads, silver and gold miners tend to follow.
Here is a summary of this article….
