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.
Furthermore, demand is on the rise. While gold is seen as a safe haven asset, the precious metal also enjoys support from consumer discretionary spending. For example, gold has found support from cultural celebrations like Ramadan, the Indian wedding season, Diwali, Christmas and the Chinese New Year. Demand is especially strong in India, where Indian households now account for the world’s largest private gold holdings at 24,000 metric tons.
Investors interested in capitalizing on the gold outlook may consider an alternative play like a smart beta gold miner ETFs such as the
For example, the U.S. Global GO GOLD and Precious Metal Miners ETF (NYSEArca: GOAU). GOAU is a smart beta offering that tracks a specialized or rules-based index to help hone in on quality players in the gold mining space. The underlying U.S. Global GO GOLD and Precious Metal Miners Index uses quantitative analysis to pick stocks, with a particular focus on royalty companies.
“Royalty companies serve as specialized financiers that provide upfront capital to help fund producers’ exploration and production projects. They receive royalties on what is produced or rights to a ‘stream,’ an agreed-upon amount of gold, silver or other precious metal at a fixed, lower-than-market price,” Holmes explained.
U.S. Global believes royalty companies are a superior way to target the gold mining segment because they offer more stable revenue and cash flow, show rising book value per share, have high revenue per employee and have low SG&A to revenue, which have contributed to the outperformance to gold bullion and the broader gold producer segment.
Financial advisors who are interested in learning more about the gold miners space can watch the webcast here on demand.