Where did that fall rally go? Whereas markets were boosted by a soft CPI report, investors are now faced with increasingly foreboding words from banks like Bank of America, JP Morgan, and more warnings of economic slowdown or even contraction in 2023. That may present an opportunity for gold to prove its worth in a small-cap gold miner ETF like the Sprott Junior Gold Miners ETF (SGDJ).
The culprit for this slowdown and possible recession? Those pesky Fed rate hikes that are expected to continue into the new year. November spending rose just 5%, Bank of America’s CEO Brian Moynihan pointed out this week, masked by an 11% increase YTD in retail payments.
While part of the problem may be that a downturn won’t be felt equally across customers and businesses, it’s clear that a lot of leadership figures are starting to warn that a slowdown is on the horizon. With the Fed still planning on additional rate hikes, it could get even worse than that, though most still expect a mild recession as the most likely outcome.
That could present an opportunity for gold. Gold tends to do well in more inflationary environments, helping retain purchasing power. Gold’s value tends to show itself when stock markets fall off, which could be in the cards.
A small-cap gold miner ETF may present an interesting play in such a scenario, combining the nimbleness of small caps with exposure to gold miners around the world. SGDJ tracks the Solactive Junior Gold Miners Custom Factors Index, which weights small gold mining firms by price momentum for gold explorers and revenue growth for gold developers.
SGDJ adds a 2.1% dividend yield, which exceeds the ETF Database Category Average, having added $14 million in net inflows over the last six months. The ETF has returned 19.19% over one month and 23.29% over three months, outperforming both the ETF Database Category Average and FactSet Segment Average over both time periods.
Gold is down from its spring high and looks to be on the way back to where it started 2022. For investors looking ahead to 2023 already and hoping to balance a downturn, a small-cap gold miner ETF like SGDJ could make for an interesting opportunity.
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