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Watch out for this 'anomaly' when buying precious metals like gold, investor warns

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A look at trends in ETFs: Gold, growth vs. value and emerging markets

You may want to think twice before you go mining for precious metal ETFs.

While now might seem like a good time to buy gold, with gold ETFs seeing more than $500 million in outflows in the first few weeks of 2020 as enthusiasm around the typically risk-averse yellow metal cooled, industry pros say investors should be careful where they tread.

That's because one corner of the precious metals market tends to see outsized swings relative to the metals themselves, Steve Grasso, managing director of institutional sales at Stuart Frankel, said Monday on CNBC's "ETF Edge."

"Gold miners always outperform about two to three times whatever the underlying commodity does, and that's both up and down," Grasso said. "So, if gold underperforms and trades down, the gold miners are going to go down about two to three times more. It's just an anomaly that always happens and you've got to be aware of it when you're investing around a metal."

That's something for investors to consider as gold prices lose luster on renewed hopes of a U.S.-China "phase one" trade deal being signed this week, Grasso said.

But with gold likely to resume its momentum from late last year — when the precious metal climbed more than 6% in less than two months — the appetite won't completely fade, particularly as the global middle class grows and uses newfound earnings to buy gold, Tom Lydon, CEO of ETF Trends, said in the same "ETF Edge" interview.

"There's been a little bit less love, but that doesn't mean we can't respect what's happened with gold," he said, pointing to the action in the SPDR Gold Shares fund (GLD), which tracks the price of the physical metal, and the VanEck Vectors Gold Miners ETF (GDX).

"GLD was up almost 20% last year. GDX was almost up twice that," Lydon said. "So, there's some definite momentum in the gold area. I wouldn't bet against it."

Nick Colas, co-founder of DataTrek Research, said in the same interview that gold's $500 million asset loss this year was simply "caused by gold's rip in the very back half of last year and some rebalancing of portfolios as we start 2020."

"I don't think it's anything fundamentally bad," Colas said. "As a matter of fact, central banks are still buying a lot of gold. It looks pretty good for 2020 as well."

Gold prices slipped Monday as the potential for a U.S.-China trade deal came into focus.

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Three ETF trends suggest 2020 inflows are out of balance, industry pros say