Gold, Silver ETF Surge Ends Losing Streak
September 27th 2011 at 8:05am by John Spence
Gold and silver exchange traded funds rebounded Tuesday to snap their losing streak as a weaker dollar and bargain hunters pushed the precious metals higher.
SPDR Gold Shares (NYSEArca: GLD) was up 3% in premarket, while iShares Silver Trust (NYSEArca: SLV) added 9%.
The metals ETFs bounced Tuesday after seeing a big drop recently on profit taking and as investors sold winners to raise cash to cover losses elsewhere in their portfolios.
“Gold prices were hit by a sharply appreciating U.S. dollar and the announcement of a further 21% increase in gold futures margin requirements by the CME on Friday,” ETF Securities said in a report.
The gold ETF is down 9% over the past five days while the silver fund has dropped 23%.
The gold-to-silver ratio has risen to 54, the highest in nearly a year, according to ETF Securities, which manages ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) and ETFs Physical Silver Shares (NYSEArca: SIVR).
Investor deleveraging as investors demand liquidity has hit precious metal prices, wrote Daniel Wills and Nicholas Brooks in the report.
“Rising concern over when, not if, Greece will default has prompted investors to liquidate investment positions. Gold has recorded positive returns in 2011, and it is often the better performing parts of a portfolio that are liquidated to fund margin calls or a move into cash and bonds,” they said.
“The moves in the gold price mirror those seen in September 2008 when gold acted as an important source of liquidity in the earliest stages of the post-Lehman credit crisis,” ETF Securities added. “Prices subsequently bounced back rapidly vs. other assets in late 2008 with gold positions being quickly rebuilt as investors built diversified positions in perceived store of value assets. Silver’s closer ties to the global industrial cycle have potentially fuelled the stronger market reaction as risk appetite has evaporated in recent weeks.”
ETFs Physical Silver Shares
Full disclosure: Tom Lydon’s clients own GLD and SLV.
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