Gold futures rose Tuesday amid continued suggestions in the market that the U.S. dollar may be leveling out or even approaching its peak value in a complicated year for other currencies impacted by central bank actions and geopolitical uncertainty. Should the dollar continue to weaken, a gold mining ETF like the Sprott Gold Miners ETF (SGDM) could be an exciting opportunity for investors.
The U.S. Dollar Index (DXY) started the month at 111.48, before falling to 105 Monday morning. While it’s since climbed to around 106, the dollar may yet ease behind signals that more relief may be coming to China and Hong Kong equity markets should China loosen its zero-COVID policies. The dollar’s weakness has also seen the pound rise to its highest point since the departure of former U.K. Prime Minister Liz Truss.
Domestically, should markets have already priced in an additional 50 basis point rate hike from the Fed, a softer general outlook from the Fed moving into the next year could see the dollar drop even further. While further positive labor news may whet the Fed’s appetite for more aggressive increases, a soft CPI report in early December could be a major indicator for the dollar and the new year.
Gold mining equities combine affordability, near a 35 year-low vs. physical gold, with the potential to benefit from investors looking for gold amid dropping fixed income yields. SGDM charges a 50 basis point fee for its exposures, tracking the Solactive Gold Miners Custom Factors Index.
The gold mining ETF has returned 7.7% over the last month, keeping up with its three month return of 7.3%. That’s a notable uptick compared to its overall YTD return of -14.6%, while SGDM has also added net inflows of $4.8 million over one month and $1.2 million over the last five days according to VettaFi.
SGDM is a notable ETF for those who are watching gold futures and see potential in how the dollar is fluctuating. With a lot of factors in play, an ETF of gold miners provides a diversified set of exposures to the industry overall, and could be an interesting play entering 2024.
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