Metals exposure extends beyond just the metal itself. Ample opportunities exist for miners, and Sprott has a pair of options worth considering given the upside in gold and uranium.
As a hawkish Fed continues to ramp up rate hikes, inflation is proving to be more stubborn than anticipated. As such, the potential for a recession continues to loom. This makes the case for gold as a safe haven asset as well as a portfolio diversifier.
“Gold bullion has unequivocally demonstrated its long-term value as a risk diversifier,” a Sprott analysis noted. “The notion that it deserves to be positioned as a defensive anchor in a balanced equity investment strategy (and perhaps in a more meaningful ratio than fixed income) is gaining traction.”
Given this, a mining opportunity exists in the Sprott Gold Miners ETF (SGDM). If gold demand continues to rise, this can have a domino effect on the performance of miners. This could allow for indirect exposure to upside in gold prices.
Per SGDM’s fund description, the ETF seeks investment results that correspond generally to the performance of its underlying index, the Solactive Gold Miners Custom Factors Index. The index aims to track the performance of larger-sized gold companies. In particular, it tracks those that have stocks listed on Canadian and major U.S. exchanges.
“Gold mining stocks are undervalued on a relative and absolute basis. Gold mining equities are trading multiples lower than the S&P 500 Index and with greater profitability and lower leverage,” the blog added.
Strong June for Uranium Mining
Another option is uranium, which is becoming an increasingly acceptable alternative energy source. Used to power nuclear energy, uranium saw its miners post strong results during the month of June.
“Uranium mining equities posted strong results in June, climbing 11.66%,” Sprott noted in a blog. “The outperformance of mining equities over physical uranium was a reversal of prior months of underperformance, which we believed indicated market dislocation.” The blog underscored the effect of high interest rates on sectors requiring intensive capital investment like uranium mining.
Uranium mining equities have suffered for higher interest rates and macroeconomic headwinds that have impacted many capital-intensive sectors. However, in June, uranium stocks were “boosted by heightened supply chain concerns, given that the contracting cycle has started and the uranium spot price has been moving higher,” the blog further noted.
If upside continues, investors should consider the Sprott Uranium Miners ETF (URNM). The fund tracks the North Shore Global Uranium Mining Index, which invests in global firms that mine, develop, and produce uranium as well as those firms that hold physical uranium or uranium royalties.
For more news, information, and analysis, visit the Gold/Silver/Critical Minerals Channel.