In the latest sign that gold miners equities and the related exchange traded funds could be ready to offer significant near-term upside, the U.S. Global GO GOLD and Precious Metal Miners ETF (NYSEArca: GOAU) is up more than 5% over the past month.
The U.S. Global GO GOLD and Precious Metal Miners ETF is a smart beta fund that “provides investors access to companies engaged in the production of precious metals either through active (mining or production) or passive (owning royalties or production streams) means,” according to U.S. Global Investors.
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. The GO GOLD and Precious Metal Miners ETF tries to reflect the performance of the U.S. Global Go Gold and Precious Metal Miners Index, which is comprised of U.S. and international companies that earned at least 50% of their aggregate revenue from precious metals and categorizes components into four “tiers” of precious metals companies based on certain fundamental factors.
Considering Catalysts for Gold
Gold miners are trading at significant discounts to broader equity benchmarks.
“Compared to the broader equities market, gold mining stocks, as measured by the NYSE Arca Gold Miners Index, look incredibly ‘marked down’ right now,” according to U.S. Global research. “They’re far below the average gold miners-to-S&P 500 ratio of 0.7 for the nine-year period, and nearly as undervalued as they’ve ever been.”
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Meanwhile, fundamentals like rising inflation and gold supply concerns may contribute 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.
“Inflation can be understood as the destruction of wealth. Every time consumer prices head higher, a dollar loses some of its value, whether in your pocket or your savings account. Inflation can also weigh on stock prices, as some investors anticipate it cutting into corporate earnings. They might therefore decide to move their money into other assets,” according to U.S. Global.
Dwindling supply is another factor that could support higher gold prices and potentially benefit miners of the yellow metal.
“If gold demand were to spike unusually high, there’s a strong probability that not enough gold would be available. We would expect the metal to be traded at a premium,” said U.S. Global.
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