Investors should consider alternative index-based strategies in the precious metals industry like a smart beta gold miner ETF as a way to potentially diversify risk and potentially enhance returns.
On the recent webcast (available on demand for CE Credit), Where Is Gold Heading In 2018?, Frank Holmes, CEO and Chief Investment Officer of U.S. Global Investors, argued that gaining exposure to gold is a good way to enhance a traditional portfolio.
Gold has crushed the market two to one since the start of 2000, and it was a very competitive asset class in 2017, generating double-digit appreciations last year. Meanwhile, gold miners may look like a bargain pick among equity plays.
“We believe gold is a bargain compared to stocks,” Holmes said, pointing to the falling gold price-to-S&P 500 ratio since 2010.
Looking ahead, market and economic factors could contribute to safe haven demand for gold. For instance, rate hikes, central bank monetary policies and geopolitical risks can add to uncertainty.
“Fear trade factors could potentially be constructive for gold,” Holmes said.
Meanwhile, fundamentals like rising inflation and gold supply concerns may contributed to stronger pricing. Gold may be past its peak supply as exploration budgets have collapsed. Gold miners are also finding fewer large deposits, which have further weighed on the supply outlook.