Precious metals, namely gold and silver, have rallied in recent months as the macroeconomic backdrop and geopolitical landscape have compelled investors to seek safety in these assets. This article will highlight the current market dynamics propelling the price for these precious metals and ETFs that provide exposure to them.  

The current backdrop

The top-of-mind value proposition of precious metals, such as gold and silver, that immediately comes to mind for investors is their ability to protect against inflation, volatility, and geopolitical uncertainty. At present, all three criteria seem to be in play in the current macroeconomic environment.

Inflation in the U.S., and other economic regions, is currently above the 2 percent target, with interest rates likely to remain higher for longer until inflation moves downward. At this juncture, the ability of gold to be a storage of value has become extremely important, as investors and individuals wrangle about the long-lasting nature of the current inflationary environment.

While the volatility level of the market is comparatively lower than it has been in recent years, there are emerging trends that various market participants are coalescing around – artificial intelligence and semiconductors – that are raising concerns about rising market concentration. With the Magnificent Seven already having an outsized influence in public equity markets, the proliferation of artificial intelligence and the increasing demand for semiconductors further strengthens the power and influence of these select firms.

Seeking portfolio refuge with precious metals amid heightened geopolitical risks

Given the low correlation between gold and silver to other asset classes, exposure to these precious metals is extremely attractive at this point to investors, given their diversification capabilities within a portfolio.

Geopolitical risk has materially elevated in recent years, with the Russia-Ukraine war and Israeli-Palestine conflict being the global events that come to mind immediately; in the case of the latter, the recent retaliatory attacks by Iran on Israel highlight the severity of the geopolitical risk that is present and the possibility of a wider Middle East conflict emerging.

Heightened geopolitical risk has always been and continues to be supportive of gold. There is also a de-dollarization theme, emerging market central banks, namely, the People’s Bank of China, and economies such as India and Turkey diversifying their reserves holdings. With the restrictions that were placed on Russia, after the Russia-Ukraine war began, emerging market nations have been buying gold to reduce their U.S. dollar exposure.

Why silver matters more than you think

Silver is like gold and has historically traded based on the same fundamentals. The versatility of silver as an industrial metal has elevated its demand in recent years. As the world moves toward electrification, silver has grown in importance due to its uses in solar panels and electric vehicles. As reported by the Silver Institute, industrial demand for silver rose in 2023 due to increasing investment in power grids and 5G networks, as well as increased use of automotive electronics and supporting infrastructure. A strong economy isn’t the best environment for gold, but it could support silver.

Investing in Gold and Silver through ETFs

For investors interested in investing in gold and silver, there are notable ETF solutions that provide a pathway to gain exposure and profit from the potential rise in the price of these precious metals, namely: 

Gold:

iShares Gold Bullion ETF (Ticker: CGL):

The fund replicates the performance of the price of physical gold bullion.

Purpose Gold Bullion Fund ETF (KILO/ KILO.B/ KILO.U):

The fund invests in and holds substantially all of its assets in gold bullion to provide investors with a secure, convenient, low-cost alternative for investors interested in holding an investment in silver bullion.

Silver:

Purpose Silver Bullion Trust ETF (Ticker: SBT/SBT.B):

The fund invests in and holds substantially all of its assets in silver bullion to provide investors with a secure, convenient, low-cost alternative for investors interested in holding an investment in silver bullion.

iShares Silver Bullion ETF (Ticker: SVR/SVR.C):
The fund replicates the performance of the price of physical silver bullion.

Horizons Silver ETF (Ticker: HUZ):

The fund will track the performance of the Solactive Silver Front Month MD Rolling Futures Index ER.

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.