Precious Metals ETFs Crash as Investors Embrace Riskier Assets

Precious metals exchange traded funds plunged Tuesday, with gold suffering its worst one-day pullback in seven years, as investors shifted toward a more risk-on attitude and locked in some profits from the bullion’s record run.

Among the worst-performing non-leveraged ETFs of Tuesday, the SPDR Gold Shares (NYSEArca: GLD) declined 5.3% and the iShares Silver Trust (SLV) plunged 13.6% as Comex gold futures fell 5.5% to $1,928.2 per ounce and Comex silver futures plummeted 14.3% to $26.1 per ounce.

“The retreat was inevitable,” StoneX analyst Rhona O’Connell told Reuters, adding that gold has been technically overbought for a while.

Dragging on the gold markets on Tuesday, investors turned more risk on and fueled a bounce in U.S. stocks on expectations that Capitol Hill will hash out another coronavirus stimulus package and looming trade talks added to hopes of easing tensions between the United States and China.

Furthermore, the U.S. Dollar Index (DXY) was up 0.13% to 93.7, and yields on benchmark 10-year Treasury notes jumped a little over 8 basis points to 0.658% ahead of an expected flood of government and corporate debt issuances.

“Today real rates clearly moved higher and that’s clearly what moved gold lower,” Michael Widmer, head of metals research at Bank of America Merrill Lynch, told Bloomberg. “You had stronger PPI data out and I think when that data came out the market had another look at rates and expectations.”

Meanwhile, gold investors have also sold off holdings to lock in recent gains, with related ETFs seeing back-to-back outflows for the first time since June, Bloomberg reports. For instance, the SPDR Gold Shares, the largest gold-backed ETF, saw its biggest outflow since March.

“It’s quite abrupt and brutal, but the price increase before was even more abrupt and brutal,” Carsten Fritsch, a commodity analyst at Commerzbank AG, told Bloomberg. “The trigger could be the sharp rise in bond yields, which caused some profit-taking and then that cascaded. When people start to take profits, more will follow, and so we see this acceleration of price declines today.”

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