Gold’s October rally may be about to face some hurdles with the Fed still intent on pumping up interest rates, but should the October CPI report’s soft print be a sign of things to come, investors may still be interested in the long term prospects of gold. An ESG gold ETF like the Sprott ESG Gold ETF (SESG) could be a more ESG-friendly alternative to yield-dependent fixed income offerings.
Gold currently sits around $1,739 at press time, having risen from the $1,650 range in mid-October. The gold rally in October took the price much closer to where it start at the start of the year, but it remains some distance away from its March high of $2,039 per ounce.
ESG is caught up in a definitional debate, but interest in Environmental, Social, and Governance investing remains a key portfolio interest for institutional and individual investors alike. A MSCI 2021 survey of 200 institutional investors responsible for about $18 trillion in AUM found that 73% planned to increase ESG investment, while a 2021 Morgan Stanley survey of 800 individual US investors reported that 79% intended to increase ESG exposure.
While debt security yields may be attractive right now, underlying indicators suggest that inflationary concerns could be overblown; if the Fed comes to the same conclusion and decides to slow interest rate hikes, gold may come back into play, especially when combined with ESG factors. For gold, that means eschewing historically significant emissions for a cleaner product.
SESG tracks the LBMA Gold Price PM Index and charges 38 basis points, having outperformed the ETF Database Category Average and the FactSet Segment Average alike with one month returns of 6.13%. SESG beat both categories by a 2% margin over three months.
The ESG gold ETF launched just this past August, reaching a $12.3 million AUM in that time. For mining companies to be eligible for inclusion in the strategy’s holdings, they must meet the Sponsors ESG Criteria and the LBMA Responsible Sourcing Program’s standards, while maintaining the Mint Responsible Sourcing Requirements set by the Royal Canadian Mint. To ensure ESG compliance, the trust will only accept gold bullion refined by the Mint after August 2, 2022.
Gold may be susceptible to further serious rate hikes by the Fed, but if CPI prints continue to soften, gold, especially gold with an ESG flavor, could appeal compared to yields offerings that don’t always meet ESG expectations.
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