The Asymmetric Effect of Precious-metal ETFs on the S&P 500

The recent surge in precious metals has created an asymmetric effect on the S&P 500, allowing investors to hedge their bets against a potential stock-market downturn. Gold and other precious metals are often seen as safe-haven assets that can hold their value in times of economic uncertainty. The U.S. Federal Reserve (Fed) raised its key policy interest rate again in early May while signalling it could pause its aggressive monetary-tightening agenda in June. Inflation nonetheless remains sticky in the U.S. due to a resilient labour market there. Stock markets have been relatively stable over the last few weeks, as evidenced by the VIX index which has, since mid-April, dipped below its long-term average. This relative stability could change, however, if President Biden and the top Republican leaders in Congress fail to reach an agreement on raising the debt ceiling to avoid the U.S. potentially defaulting on its bond payments and other obligations.

In light of this, investors are becoming more cautious. Global stocks are struggling for direction amid growing uncertainties, pushing more flows into precious-metal ETFs.

As an illustration, the Invesco Physical Gold USD ETC gained 3.198% and saw €162 million in inflows for the first week of May, while the ZKB Gold ETF AA - CHF jumped 3.778%, outperforming the S&P 500, down 0.80% over the same period. Overall, gold and precious-metal ETFs gained 1.952% and 2.01% respectively week-over-week.