Gold hit an 11-month high Tuesday, strengthening gold miner exchange traded funds as rising market uncertainty pushes more traders into safe-haven gold.
Specifically, the VanEck Vectors Gold Miners ETF (NYSEArca: GDX) rose 0.5%, iShares MSCI Global Gold Miners Fund (NYSEArca: RING) gained 1.2% and U.S. Global GO GOLD and Precious Metal Miners ETF (NYSEArca: GOAU) increased 1.0% as Comex gold futures were 0.2% higher to $1,317.5 per ounce.
Gold prices touched the 11-month high as a North Korean missile launch over Japanese airspace renewed geopolitical tensions in the region and triggered a flight to safe-haven assets.
Japanese Prime Minister Shinzo Abe called the action an “unprecedented, grave and serious threat that seriously damages peace and security in the region,” MarketWatch reports.
Frank Holmes, CEO and Chief Investment Officer of U.S. Global Investors, said there are two main ‘fear’ factors driving gold higher – North Korea and real interest rates.
“In terms of interest rates, we have witnessed the 10-year government bond real yield rise, but now it has been rapidly shrinking,” Holmes said in a research note. “This means the U.S. dollar is pushed lower, propelling the price of gold higher. I don’t believe this ‘safe-haven’ rally we are experiencing is short lived; I think the rally is real and I remain bullish on gold.”
The safe-haven play is expected to linger, especially with President Donald Trump potentially adding fuel to the fire – the president has previously stated the U.S. would react with “fire and fury” if Pyongyang threatened the U.S. and its allies.
“There is increasing expectations for President Trump to counter react to the North Korean aggression, which may further propel the prices upwards,” Mihir Kapadia, CEO at Sun Global Investments, said in a note.
Related: A Smart Way for ETF Investors to Access Gold Miners
Potential investors interested in gold miners as a way to capture the current strength in the gold market have a number of options to choose from. For instance, GDX and RING provide traditional market-cap weighted exposure to global gold miners. Additionally, the recently launched GOAU implements an alternative smart-beta indexing methodology to the gold miner theme, which also puts an emphasis on steadier royalty companies.
Holmes said investors should know that royalty companies can help investors manage many common risks associated with traditional producers.
“Since they are not directly responsible for actually building and maintaining the mines themselves, or other costly infrastructure, massive operating expenses can be avoided,” he said. “Concentration risk is also mitigated because these royalty companies hold highly diversified portfolios of mines and other assets.”
For more information on gold producers, visit our gold miners category.