Gold miners exchange traded funds like the Sprott Gold Miners ETF (NYSEArca: SGDM), could thrive this year as bullion prices, but that’s only part of the equation.
In recent years, many miners eschewed profligate spending, focusing on firmer balance sheets. Those moves paid dividends. Literally.
“The good times for gold miners are expected to continue next year, especially for those that are able to tighten spending and increase returns to investors,” reports Aoyon Ashraf for Bloomberg. “The rally in gold prices has helped miners expand their margins and generate record levels of free cash flow, allowing many to pass on profits to shareholders already, Scotiabank analyst Tanya Jakusconek said.”
SGDM tracks the Solactive Gold Miners Custom Factors Index and “emphasizes gold companies with the highest revenue growth and free cash flow yield, and the lowest long-term debt to equity ratio,” according to Sprott.
Golden Opportunities for Gold Miners
Adding to the case for SGDM is improving cash flow for many gold miners, the result of rising gold prices and prudent balance sheet management.
“Credit Suisse analyst Fahad Tariq said he expects this year to be another ‘banner year for gold’ with prices heading to an average of $2,100 per ounce,” according to Bloomberg.
It’s no secret that gold has been a major beneficiary during the coronavirus pandemic. As a viable safe haven asset, the precious metals can sidestep the uncertainty in the capital markets. But investors don’t actually have to get pure-play gold exposure in order to reap the benefits of the precious metal. Gold miners do the trick.
According to Bloomberg, “the selloff in the second half of the year likely facilitated a ‘shakeout of weaker names’ that had participated in the first-half rally, Delbrook Capital founder and portfolio manager Matthew Zabloski wrote in a letter to investors. But now he expects a ‘big rebound’ in precious metal prices, which could again lift the sector. He sees interest rates remaining low as swelling liabilities around the globe make rapidly increasing rates ‘intolerable’, he said.”
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.