Investors Favoring SLV Over GLD

by on September 15, 2014 | ETFs Mentioned:

The SPDR Gold Trust (GLD) was in for a wake-up call in 2013. Until that calendar year, the ETF had never suffered an annual loss, only to see 2013 drag the fund down by nearly 30%. GLD has bounced back this year, but investors still appeared to be spooked, as the precious metal ETF continues to hemorrhage assets. Meanwhile, the iShares Silver Trust (SLV) has managed to attract inflows despite a poor performance, as investors appear more comfortable with the cheaper precious metal [for more ETF news and analysis subscribe to our free ETF Daily Roundup].

GLD vs. SLV: A Battle for Assets

As far as overall size is concerned, GLD dwarfs SLV, as it holds more than five times the assets of its silver counterpart. That gap used to be much wider prior to 2013′s abysmal run for gold. Investors began pulling their money out of GLD causing the fund to suffer a major drawback in assets. Meanwhile, SLV actually performed worse than gold, but still managed to attract meager inflows:

  2013 Net Flows (MM) YTD Net Flows (MM) 2013 Performance YTD Performance
GLD -$25,050 -$389 -28.3% 6.7%
SLV $81 $272 -36.3% 0%

Losing more than $25 billion in assets in less than a year marks one of the more rapid exoduses the ETF world has seen. Part of the reason for this is that GLD is owned by many high-net-worth and institutional investors who cut flailing positions more quickly than a retail investor might. Still, GLD quickly went from the second largest ETF in the world to the eighth place position. Meanwhile, investors seemed somewhat comfortable allocating to silver, a trend that picked up in 2014. It seems that the negative stigma surrounding gold’s fall from grace gave GLD something of a black mark on its record, while silver remained in relatively good graces with retail investors [see also 10 Best Days Ever for the Gold ETF].

SilverTrue, silver has always been the more volatile precious metal, but it is still surprising to see that investors are willing to allocate to it, given the fund’s struggle in the last few years. After hitting highs in early 2011, silver has seen a mostly downward trajectory, which could be triggering bargain buyers, something gold may not have found just yet. Silver also has closer ties to the industrial world, which may help convince a buying trend as the economy continues to climb higher.

GLD May Hinge on the Fed

Investors have made it clear that despite SLV’s floundering performance, they are still willing to put some trust into the fund. GLD, on the other hand, will have to wait its turn as investors keep their eyes fixed on equities and the constant stream of new highs from the S&P 500. For now, its seems like the next major catalyst for gold and GLD will be the Fed raising rates. Though an exact timeline is still unknown, raising rates would be a generally bullish sign for gold, as it means that the Fed is concerned with inflation rising too quickly; something that usually bumps up demand for gold [see also The Definitive Silver ETF Guide: Silver ETF Investing 101].

For those who still like gold over the long term (and silver for that matter), there is certainly an argument to be made that these two ETFs are contrarian/bargain buys at their current levels. However, predicting where these metals will be in a year or two’s time is nearly impossible, making it difficult to trust these assets for many.

Follow me on Twitter @JaredCummans.

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Disclosure: No positions at time of writing.