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Understanding Fund Flows in Bullion-Backed ETFs

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Oct. 23 2015, Published 10:53 p.m. ET

ETF flow

As precious metals investors wait for the rate hike, the current uncertainty over the Fed’s move is likely giving some breathing room to the bullions. All four precious metals, gold, silver, platinum, and palladium, have gained 4.2%, 8.4%, 9.1%, and 8.6%, respectively.

After gold’s falling for most of the year, gold bugs have seen a sign of relief. Investors have added about $393 million to gold-backed ETFs in October 2015. This has been the biggest monthly inflow since February. Gold has rallied more than 8% from a five-year low in July.

Silver, too, climbed after the Fed kept interest rates unchanged at the September policy-setting meeting. Above is a chart that shows the fund flow of the SPDR Gold Shares ETF (GLD) from 2013 to the current month.

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Mining equities

Retail investors seem to be returning to precious metals after a rout that has wiped more than $90 billion from bullion-backed ETFs since 2012. Investors appear to be re-emerging after sliding prices have started firming. Physical demand for silver has been on the rise.

Silver-backed ETF iShares Silver Trust (SLV) has gained 7.0% on a trailing-30-day basis and has marginally gained 0.33% on a year-to-date basis. Similarly, the SPDR Gold Shares ETF has followed the losses in gold, falling 1.7% on a year-to-date basis.

Some of the major mining equities such as Agnico Eagle Mines (AEM), IAMGOLD (IAG), New Gold (NGD), and Eldorado Gold (EGO) have emerged as winners in the past month. Their prices are now trading above their 100-day moving average prices. This is a sign of optimism in the market.

The four stocks have gained 27.1%, 24.2%, 22.9%, and 32.6%, respectively, on a trailing-30-day basis. The four together determine 12% of the price changes in the VanEck Vectors Gold Miners ETF (GDX). The ETF itself has seen a rise of 21.4% on a trailing-30-day basis.

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