Barbarian on the Positive Feedback Loop in Metals ETFs

With gold, silver and all the other metals plummeting this morning upon the dollar’s sudden burst of popularity, investors who plowed in at the top may be wondering what the hell they’ve gotten themselves into; like all momentum trades, the metals ETFs took the stairs up and the elevator down.

But how did so many people end up loaded with precious metals investments anyway?

My pal Barbarian Capital had a great post up over the weekend on how the Securitization Game has morphed into the ETFization Game on Wall Street.

His delineation of the positive feedback loop that all these ETFs have created in the metals market is phenomenal:

Let’s look at an example of how things evolve. GLD, the major gold ETF, has been around for a few years. A year or two later, we got GDX, gold miners, and SLV, silver ETF. Well, that’s not enough for a hot sector. We got palladium and platinum to play with via PALL and PPLT.

You’d think that this is enough for sector exposure? Think again. We got GDXJ, junior gold miners, for people who think that GDX is too staid. Why have five mines in Canada when you can have one in Burkina Faso? By now we should be done, right? Wrong. There is a better mouse trap. GLD and SLV are favorites for PM market alarmists, so we later got the “physical” gold and silver, PHYS and PSLV. That should wrap it up, this looks like an ETF buffet table.

Again, wrong.

Why should you limit yourself to gold miners, when you should really be playing the silver miners, SIL. And if having operating mines just does not sound rewarding enough, you can always try to strike gold with GLDX, the “gold explorers” ETF released last week. And, where would we be without the levered gold and silver ETFs, UGL and AGQ.

I am no Soros/reflexivity expert but I can tell you that this looks like market participants really wanting to believe in their investments, and acting it out.

Killer stuff and right on the money.


Time for a Taxi Cab Medallion ETF (Barbarian Capital)

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