Silver ETFs were set to rise Monday even though investors have been pulling money from the metal ETFs recently. The iShares Silver Trust (SLV) climbed more than 1% in premarket action Monday.
Yet exchange-traded products that invest in silver saw outflows of $238 million in the latest week, according to research from Deutsche Bank. Silver ETFs such as ETFS Physical Silver (SIVR) and PowerShares DB Silver (DBS) are trying to find their footing after the huge drop in early May.
One analyst notes that gold and silver ETFs followed the S&P 500 much more closely in May than usual.
“Gold and silver saw their price correlations rise more dramatically last month than all of the other asset classes we track, a worrisome development that bears close attention in June,” wrote Nicholas Colas, chief market strategist at ConvergEx, in a June 2 report. He monitors correlations among many asset classes on a monthly basis.
“May was a tough month for U.S. stocks, and June isn’t starting off much better. The real damage to capital markets, however, only becomes visible when viewed through the lens of asset price correlations,” Colas wrote. “Broadly speaking, the 2011 rally in risk assets, even with its pullbacks and stutter steps, had driven correlations consistently lower. That is the sign of a healthy capital market.”
However, a rocky May for markets boosted market correlations, with the largest pops in correlations to stocks in gold and silver.
“Precious metals as an asset class should have no correlation to financial assets such as stocks, and earlier in the year that’s precisely how SPDR Gold Shares (GLD) and iShares Silver Trust traded,” Colas said. “Last month, however, the correlations of gold and silver to stocks spiked … There were plenty of exogenous factors last month, from changes in margin requirements to an atypical strengthening of the U.S. dollar, so we are going to give gold and silver a ‘mulligan’ for May.”
iShares Silver Trust
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Full disclosure: Tom Lydon’s clients own SLV.