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Gold, silver ETFs surge as metals hit multi-year highs

Ben Johnson, Morningstar's Director of Global ETF Research, joins Yahoo Finance's Akiko Fujita to break down the outlook on gold & silver ETFs amid coronavirus uncertainty.

Video Transcript

AKIKO FUJITA: Time for our ETF report, brought to you by Invesco. And today we're taking a closer look at silver and gold, gold hitting a nine-year peak on Wednesday as investors poured into the safe haven. Meanwhile, silver has extended its surge after hitting a near seven-year high. Let's bring in Ben Johnson. He is the director of Global ETF Research for Morningstar.

And Ben, it's interesting we're talking about the safe haven place when we see the market push up so high. Why are we seeing some investors pour into gold? What's driving the demand right now?

BEN JOHNSON: Well, Akiko, I think what you initially saw earlier this year was exactly that. It was a safe haven play. The markets headed south, and investors sought safe harbor in fixed income securities to an extent, but also precious metals, and gold in particular-- which historically, has been flocked to. Most recently, also, we saw a similar pattern during the aftermath of the global financial crisis.

Investors seek out that relative stability. The problem with that being, is that by the time they're seeking it out, it's almost like buying flood insurance after you're already swimming in your living room. A lot of the year-to-date gains that you've seen in gold in particular, came actually up until that point. And since the market bottomed on March 23-- which is when we've seen about $24 billion subsequently flow into gold-backed exchange-traded funds, stocks have actually outperformed gold by about 20 percentage points.

So it's a lot of money flowing, in probably what's been the wrong direction, and it's been late. That safe haven play hasn't quite panned out. And what you've seen is the evolution of the narrative now into an inflation trade, as you see not just the Fed's balance sheet, but central bank balance sheets around the world ballooning. People are worried about inflation. And gold, not just historically, served as a safe haven, but also potentially a way to protect against future inflation, which is what I think a lot of those investors who put 24 billion bucks into gold ETFs in recent months are betting on.

AKIKO FUJITA: But where are you seeing that money flow in from on the commodity plays? Is it from the institutional investors? We've been talking so much about the retail investors jumping into the market, especially in equities. But what are you seeing on this front with ETFs, particularly as it relates to commodities?

BEN JOHNSON: We're really seeing flows from investors of all stripes, from hedge funds to individuals. So if you look at 13F data that's filed by some of the big hedge fund players, they rank among some of the largest holders of some of the largest gold ETFs. If you look at data from Robintrack, which actually tracks the number of Robinhood accounts that hold gold ETFs like GLD, we've seen the number of Robinhood accounts that own GLD and SLV-- which is the largest silver ETF-- expand by 80% since the market bottomed in late March.

So you're seeing broad participation across the entire investor spectrum, which speaks to the beauty of the ETF wrapper. It's a very democratic wrapper that makes it easy for anybody to go own gold. No longer do you have to have an armored truck drop it off at your front door, or bury it in your backyard and hire an angry dog to protect it for you. You can buy and sell shares of these funds on an exchange no different than you would Apple or Amazon, and it's protected by a legitimate security force and a vault, in all likelihood, someone-- somewhere deep underground in London. So it's a brilliant wrapper, and an easy way for investors of all stripes to get exposure to precious metals.

AKIKO FUJITA: Yeah an 84% growth, that's a pretty impressive number. You talked about getting into gold and silver as a hedge against the inflation narrative. What are some other sectors you think investors should be looking at in the face of that right now?

BEN JOHNSON: Well, I think investors should keep in mind that one of the best inflation hedges, really, is just having an exposure to equities, which are going to benefit from the broader growth in the economy. Income-oriented equities, in particular, that have historically managed to grow their payouts to shareholders in the form of both dividends as well as share repurchases at a rate that's greater than inflation, or actually, fundamentally, a very good inflation hedge. And I would argue over a very long period of time, probably easier to stick with. They produce regular income, unlike gold, which doesn't give you anything. It's nice to look at and behold. It's a Pet Rock, really, at the end of the day.

So I would advise that investors take a close look at their dividend growth, ETFs, that we have Morningstar rate highly, the likes of the Vanguard Dividend Appreciation ETF. The IG's the ticker for that one, or the Schwab US Equity Dividend ETF, SEHD, both of which are Morningstar medalists.

AKIKO FUJITA: Some good takeaways for investors there. Ben Johnson, appreciate your time. The director of Global ETF Research for Morningstar joining us there.