Can the Rally in Precious Metals ETFs Continue?

Gold and silver prices continued to climb on Oct. 21, 2024, reflecting ongoing investor interest in precious metals. Gold futures surged to new highs, increasing by 0.8% and approaching $2,750 per ounce. Silver futures also saw substantial gains, rising over 3% before paring back, briefly hitting $34 per ounce — the highest level in 12 years.

Both metals have outperformed the broader market in 2024. Gold has risen 26% year to date, while silver has surged 35% compared to the S&P 500’s 19% gain since the start of the year. Gold bullion ETF SPDR Gold Trust GLD has gained 31.8% this year, and the silver bullion ETF iShares Silver Trust SLV advanced 42.4%.

Key Drivers: Central Bank Purchases and Inflation

Record purchases by central banks in the first quarter of 2024 mainly aided the gold rally. According to BofA analysts, gold has surpassed the euro to become the second-largest global reserve asset, trailing only the U.S. dollar, as quoted on Yahoo Finance. In addition, physically backed gold exchange traded funds (ETFs) have seen inflows increase for three successive months, as noted by the World Gold Council.

Investors have been attracted to gold due to declining inflation expectations and a more dovish stance from the Federal Reserve, according to Phil Streible, chief market strategist at Blue Line Futures, as quoted on Yahoo Finance. Streible predicts that gold could reach $2,850 by the end of 2024. Note that the annual inflation rate in the United States slowed for the sixth successive month to 2.4% in September 2024, the lowest since February 2021, from 2.5% in August.

Silver's Surge and Market Sentiment

Silver, which surged more than 6% last Friday, also continues to perform well. Analysts from JPMorgan pointed to a bullish sentiment at the London Bullion Market Association and London Platinum and Palladium Market conference, where participants forecast an average silver price of $45 per ounce next year. Silver is also considered an industrial metal. Since the Fed rate cut cycle has started, speculation of an industrial uptick has been prevalent, which, in turn, has boosted silver prices.

Can Silver ETF Rally Continue?

Silver’s diverse industrial applications, including electronics, fuel cells, and solar panels, are a great plus. However, JPMorgan analysts expressed caution, noting that silver could face uncertainty if Donald Trump wins the 2024 presidential election. A Trump presidency could lead to a hard-line stance on tariffs, complicating the investing scenario for the industrial metals market despite potential Chinese stimulus in 2025, as quoted in the above-mentioned Yahoo Finance article.

What Lies Ahead of Gold ETFs?

Gold mine production nudged up 0.5% year over year in 2023, gained 1.35% in 2022, grew 2.7% in 2021 and recorded the first decline (down 1%) in a decade in 2020. WGC chief believes that gold’s decade-long growth story, which started in 2008 has been showing a downtrend. New gold deposits are now scarce (read: 3 Reasons Why Gold ETFs Could Surge From Here).

Goldman Sachs predicts that gold could reach $2,700 per troy ounce by early 2025, while other experts anticipate even larger price increases for gold in 2025, mainly due to the Fed rate cut momentum. India — one of the world’s largest consumers of yellow metal — plays a key role in determining gold prices during November-December due to the occurrence of Dhanteras (the most auspicious day in India for buying precious metals) and wedding season.

Bottom Line

Gold’s rally from here depends on the Fed’s behavior and the progression of the geopolitical crisis. Gold ETF investors should closely watch the economic and market events before making any decision.

Hence, investors should closely track ETFs like iShares Gold Trust IAU, abrdn Physical Gold Shares ETF SGOL, SPDR Gold MiniShares Trust GLDM and Goldman Sachs Physical Gold ETF AAAU. In a bull-case scenario, investors should track leveraged gold ETF ProShares Ultra Gold UGL. Meanwhile, silver ETFs should include iShares Silver Trust SLV, abrdn Physical Silver Shares ETF SIVR and ProShares Ultra Silver AGQ.

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