Gold’s historic rally was stalled on Thursday. The yellow metal crept below $4,000 an ounce as investors booked profits amid the Israel-Hamas ceasefire agreement and a higher U.S. dollar. The retreat has carried over to the ETF sector, as investors are rebalancing between exposure to gold and silver after a busy week for precious metals.
GLD ETF is up more than 48% this year. Track its prices in real-time.
The SPDR Gold Shares (NYSE:GLD) and iShares Gold Trust (IAU), two of the largest physically backed gold exchange-traded funds (ETFs), experienced a dip following weeks of rampant investor interest. The funds were down 2.3% and 2.2% respectively, Thursday.
Analysts attribute the temporary correction to a typical “cool-off” period after a parabolic move, but gold ETF allocations continue to be high due to continued prospects of Federal Reserve rate cuts. GLD itself set fresh records of $35 billion as of the end of September, according to State Street.
Global gold ETF inflows reached $64 billion so far this year, according to World Gold Council data, in stark contrast to outflows of about $23 billion over the last four years.
Demand for Gold ETFs increased to 587.8 metric tons between January and September, in contract to a 6.8-ton outflow for the full-year 2024, according to the WGC, as reported by Reuters.
While Thursday weakened, strategists argue that gold positions will not be thrown out by ETF investors completely. The ceasefire might have shaved short-term geopolitical risk premiums, but the macro drivers, rate cuts, central bank buying, and residual inflation, should still support gold ETF demand.
Simultaneously, silver ETFs are regaining their appeal as spot silver reached an all-time high of more than $50 per ounce. The iShares Silver Trust (NYSE:SLV) and abrdn Physical Silver Shares ETF (NYSE:SIVR) both registered firm, if not spectacular, gains this week, representing tempered enthusiasm over unbridled speculation. Investors are looking at silver’s supply deficit and industrial demand tailwinds as reasons to stay long despite ETF flows still being modest relative to gold.
According to Reuters, Morgan Stanley recently said that physically-backed silver ETFs have seen strong inflows this year, thanks to increased solar panel installations in China between January and May. However, as solar demand growth is expected to slow down, “silver has an upside but it could start to lag versus gold.”
The disparity between the two metals has broadened the interest in portfolio balance within the ETF market. Investors may be seeing silver as a likely late-cycle winner.
With the Fed’s rate-cutting cycle in motion and the dollar at a two-month high, ETF investors are backing off instead of retreating. The question now is: will silver ETFs shine brighter on industrial momentum or will gold funds take over again once the macro dust settles?
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