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Gold and silver ETFs attracting investment ahead of deflation

With precious metals prices poised to pick up speed, more fund managers are launching precious metals ETFs on European bourses. Gold and silver ETFs are an alternative to buying precious metals futures and track the spot price of the commodities.

Called ETCs – exchange traded commodities – many such funds own reserves of bullion contained in secure vaults. Fund managers seem to be anticipating a surge in interest in precious metal prices.

Xtrackers has launched the IE Physical Silver EUR Hedge ETC Securities on Germany’s Xetra and the Frankfurt Stock Exchange. It is an exchange-traded bearer bond that is hedged against currency risks.

The silver price has yet to move, having come off as the coronavirus crisis hit in March. It dropped well below the $17/oz level to bottom out at just under $12/oz. It has since rallied but was looking relatively rangebound through to 6-7 May, but has since picked up some momentum. It broke the $17 resistance level this week.

Other fund managers are reporting considerable investor interest in gold ETCs. Amundi, which launched its first gold ETC a year ago on the London Stock Exchange, has reported that assets under management are up at $2.7 billion. Similarly, HANetf, which launched a gold ETC in London and Frankfurt in coordination with the UK’s Royal Mint, has reported considerable interest in that product, with assets over $300 million.

“Markets in 2020 have been volatile but gold has delivered a safe haven asset,” said Ashley Fagan, Head of ETFs at Amundi. “In an environment marked by uncertainty, gold can be used by investors to diversify their portfolios and provide an important long term hedge against market risks and inflation.”

The gold price has picked up off the floor it hit around the $1455/oz on 23 March, and is currently just above the $1700 level. A resistance level also exists at around $1748, based on a series of technical indicators including the SMA.

ETFs are seeing large net inflows into the funds, with net gains of €8.1 billion in April as market sentiment started to pick up. This included €19 billion into equity funds, according to ETF fund manager Lyxor. Fixed income ETFs and money market ETFs did particularly well.

As inflation in the UK drops like a stone, investors are obviously becoming more concerned about what this will do to real earnings. Gold and silver offer the prospect of a store in value during times of extreme economic turbulence.

James Norris

James is a highly experienced writer and editor, gained from more than 20 years in the financial services industry, in particular wealth management and asset management.

He initially worked as a financial journalist for a number of leading media brands, including the FT Group, Financial News, Euromoney and Incisive Media, covering most aspects of the asset management industry. More recently, James switched to work as an in-house content specialist for fund management and wealth management groups, including JP Morgan Asset Management, Quilter Cheviot Investment Management, AXA Investment Managers and Invesco Perpetual.

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