Why Gold Prices, ETFs, Will Regain Their Lost Luster | ETF Trends

Gold prices are slack to start 2021, but some commodities market observers believe that trend will reverse, prompting investors to return to gold exchange traded funds.

Investors can tap into that trend with exchange traded funds such as the Sprott Gold Miners ETF (NYSEArca: SGDM) and the Sprott Junior Gold Miners ETF (NYSEArca: SGDJ).

“Higher Treasury yields and the recent bounce in the [U.S. dollar], both of which rely on economic strength,” are the main short-term factors that have held gold prices back since the U.S. presidential election in November, says Peter Grosskopf, chief executive officer of Sprott. However, “we believe the markets are more dependent on government stimulus and money printing than they have ever been historically.”

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 the issuer.

SGDM 1 Year Performance

Gold ETFs Can Bounce Back

Some also point to a weakening U.S. dollar that could further support gold as a better store of wealth. The aggressive fiscal and monetary stimulus measures, along with a shift toward riskier assets, could weigh on the dollar. Since gold is priced in the greenback, a weak dollar makes it cheaper for foreign gold buyers

Grosskopf “sees gold prices this year rallying to more than $2,000, with a rise to fresh record highs by midyear, as expectations that U.S. President Joe Biden and Treasury Secretary Janet Yellen will “stand behind their rhetoric” and “deliver stimulus in large increments,” are great for gold in the short- and long-term. Yellen suggested as much in testimony to the Senate Finance Committee earlier this month when she said the smartest thing to do is to “act big” to help struggling Americans,” reports Myra Saefong for Barron’s.

SGDJ tracks small cap gold miners, but weighs its components based on revenue growth and price momentum. SDGJ focuses on price momentum, which helps identify leading junior gold miners driven by factors like new discovery, mine development, or joint ventures.

SGDJ 1 Year Performance

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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.