Investors lose faith in precious metals miners as fund outflows hit record levels


Global outflows from exchange-traded funds (ETFs) that funded in miners of gold, silver and platinum hit $4.4bn (£3.4bn) in the second quarter of the year – the largest on the account, according to information from IHS Markit.

But investors appear to be losing trust in the precious minerals sector after outflows from the funds that track the industry hit a record high.

The amount is the biggest since the financial crisis and dominates the second largest on record, an outflow of $800m in the fourth quarter of 2015.

Simon Colvin, an analyst at IHS Markit, said that the outflow showed “profit taking after the sector’s rally started to lose steam”.

“Stocks have had a good run in the last 18 months,” he said. “Metals have been trading flat recently. People are now saying: ‘does it have any room to run?’”

ETFs are financial goods that allow investors to put funds into a variety of assets such as shares, commodities and bonds. Those that follow precious metals miners buy up stock in those corporations and hold it in place of their investors, distributing advantages as they arise. ETFs are listed and can be purchased and sold in the same way as common shares.

The flows from precious metals miners stand in contrast to other divisions, which have enjoyed floating demand from investors desiring to buy into equities this year, according to Markit.

All six precious metals miners in the FTSE 350 Mining Index – a group of the UK’s biggest listed mining companies – have fallen in price in the second quarter of the year by 11 percent on average. However, this is skewed by the performance of Acacia Mining, which has seen its shares plunge by a remarkable 33 percent because of an open-ended row with the government of Tanzania, its host country, over taxes and exports. Stripping out Acacia, the average fall is around 7 percent.

Despite the dull performance of the metal sector, precious metal prices have progressed so far this year, with gold up 8.3 percent, silver up 4 percent and platinum up 2 percent. Gold prices have started to retreat, however, with the metal falling to around $1,221 today.

Investors are worried that the US Federal Reserve may extend to increase interest rates. Higher interest rates are more likely to prevent investors from buying gold, as the metal has no yield, and they start to get a better return on other purchases.

“Everyone is anticipating rate increases by the Fed, which will push down precious metals prices, but this is largely priced in for now,” said Marc Elliott, an analyst at Investec. “There’ll be some price erosion, but it shouldn’t be disastrous.”

The Federal Reserve has increased interest rates twice this 2017, with its newest move coming last June. Traders are foreseeing at least one more increase by December.