Gold (GC=F) has become quite the hot commodity as the metal has gained back momentum from its October 2023 lows. Gold traders typically diverge into two categories: central banks purchasing gold and ETF investors selling gold. Which is the best way to handle precious metal trading during this period of uncertainty?
abrdn Director of ETF Investment Strategy Robert Minter joins Yahoo Finance to discuss the best ways for investors to look at gold and figure out the best way to maximize their portfolios with the commodity.
Minter elaborates on not just gold, but also silver (SI=F) and how to capitalize on both commodities: "So with gold at or near all-time highs and silver trading at a 50% discount to its all-time high, which occurred in 2011, I think silver is really interesting. About 50% of demand for silver comes from industrial activities, and so we like SIVR (SIVR), which is a silver ETF. We also like BCIM (BCIM), which is a Bloomberg Industrial Metals commodities index. It's purely passive. Has a large weight in copper, aluminum, zinc, nickel, lead, all of the things that drive both the energy transition and the industrial economy."
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Editor's note: This article was written by Nicholas Jacobino
Video Transcript
- Watching the price of the gold trading near all time highs hovering around the peak we saw last week of $2,182 per ounce. Now that's nearly a 20% rise in a little over just five months. Since those October 2023 lows. But there's been a divergence in how to play commodities amid persistent inflation.
Central banks have been purchasing more gold while ETF investors are looking at rising real interest rates and selling gold. As part of our ETF strategy brought to you by Invesco QQQ. Let's bring in Robert Miltner. Aberdeen director of ETF investment strategy. To discuss the smartest ways to invest in the precious metal trade.
Thank you for joining me in this morning. So first as we look at what we've seen with gold prices here, and we're looking at that inverse relationship that we typically see with treasuries and gold. How should people be looking at investing via ETF in this space?
ROBERT MINTER: Sure. So the story really has always been that investors trade gold based off of real interest rates. And so as real interest rates minus inflation rise, gold would tend to drop in price. So that is in fact, what ETF investors have been doing for the last two years. As real interest rates have risen. They've sold 750 tons across the industry of gold.
Which is a very large amount. And the only reason that gold prices are not lower than they are today, given all that selling is because there were two very large buyers in the market. One was the collective central banks which bought 2000 tons over the last two years. And more recently open interest has spiked higher from hedge fund and investing.
And that's just been recently in the last couple of weeks. So those two segments of the market have been buying and ETF investors continue to sell. They would tend to start to buy once we get a Fed funds rate cut. Actually come through.
- So Robert, so it sounds you don't necessarily think that the fundamentals support where gold prices have gone if it weren't for those two big buys that you were talking about? Wouldn't be the record that we saw last week. Where does it go from here then with the expectation that there could be a rate cut from the Fed come June?
ROBERT MINTER: Sure. So last three times that we reached this point of the Fed hiking cycle, which the last hike is already done. We're in the pause period of the cycle. Right before a cut and whether the cut happens in June or some other month this year it really doesn't matter much to us. The point is that the hikes are over and the next move is going to be a cut.
And when it occurs-- last three times that happened was in 2000 2008, 2000 2006 and 2018. And those last three times resulted in a 57% 235% and 69% rise in the price of gold. So past is not the future. However, that's how all the AI machine learning and trading systems work. So that has gold on our radar.
- And so as we look at some of the other things that are on your radar. I mean, you have to wonder if investors are perhaps either overlooking or undervaluing gold. As they perhaps look at some of these sexier things like they're seeing with NVIDIA and chips and other things. How should people be looking at allocating precious metals in their portfolio and some of the names you like?
ROBERT MINTER: Sure. So commodity cycles tend to run in a bit longer than the average investor thinks. So we look at data since 1870. And the average cycle is about 18 years. So when tend to be good times to increase commodity exposure from a very broad level without getting into all the fundamentals and miner activity, et cetera. And so there's really two events that can warrant increasing commodity exposure.
Very low physical inventories. There's not a lot of it around. That's true right now across a lot of the commodity spectrum. And the second thing is, very low or short money manager positioning to commodities. And that's very true now also. So with both of those true, it's really interesting to us and we heard a little bit of it from your prior guests. That there's increasing difficulty adding to commodity supplies from miners.
Due to environmental concerns, changing taxes, government regulation hurdles et cetera, that are changeable. And in addition, we're seeing a better outlook for the global economy and for commodities in particular. It's very exposed to the Chinese economy. So with this-- in this sort of a setup, we think commodities warrant a little bit closer attention. Particularly industrial exposed commodities and silver.
- So Robert, let's talk strategy. How do you put your money to work in the space?
ROBERT MINTER: Here. So--
- You've got your eye on.
ROBERT MINTER: Sure. So with gold at or near all time highs and silver trading at a 50% discount to its all time high. Which occurred in 2011. Think silver is really interesting about 50% of demand for silver comes from industrial activities. And so we SIVR which is a silver ETF.
We also BCIM which is a Bloomberg industrial metals. Commodities Index. It's purely passive. Has large weighting to copper, aluminum, zinc, nickel, lead. All the things that drive both the energy transition and the industrial economy. So we like both of those right now.
- All right, Robert Minter Aberdeen director of ETF investment strategy. Appreciate you stopping by today. Thanks so much for joining us.
ROBERT MINTER: Thank you.
