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Investors Fleeing to Safety Puts Precious Metals in Play

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Aug. 30 2016, Published 2:59 p.m. ET

Precious metals rallied

Investors have been increasingly bullish about the precious metals market since the beginning of 2016. Gold, silver, platinum, and palladium have seen year-to-date (or YTD) rises of 24.1%, 33.3%, 20.3%, and 22%, respectively. The Brexit vote in June substantially added to haven bids for gold and silver.

The flight-to-safety attitude among investors has boosted these precious metals and also precious metals mining equities. Mining shares such as Yamana Gold (AUY), Pan American Silver (PAAS), and Cia de Minas Buenaventura (BVN) have risen by a whopping 137.6%, 176.5%, and 214%, respectively.

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Miner’s slump

The red-hot market for gold-mining companies has made shares too expensive for some investors, even though they remain bullish on the outlook for gold.

During the start of the year, many large hedge fund managers showed a keen interest in precious metals mining companies because, after a five-year slump, these miners looked comparatively cheap. Many of these companies are now worth twice as much they were in 2015. Now that’s a big leap.

Precious metals funds

Due to increased sluggishness in economic growth, the appeal of these metals stood strong until July’s end. ETFs linked to precious metals saw a net inflow of $2.4 billion in July. The iShares Gold Trust ETF (IAU) and iShares Silver Trust ETF (SLV) have risen by about 24% and 34%, respectively, YTD.

However, the month of August some bad news for these metals as well for miners on fears that the Fed would increase the rate of interest sooner rather than later. The above two gold and silver funds have fallen by 2.2% and 8.4%, respectively, on a 30-day-trailing basis, as of August 26, 2016.

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