Global forces are pushing gold prices higher, and investors can turn to smart gold miner exchange traded fund to capitalize on these price moves.
In the recent webcast, War, Safe Havens, and the Fed: Why Now Could Be Gold’s Time to Shine, Frank Holmes, CEO of U.S. Global Investors, noted that gold has been a long-term performer, generating positive returns on an average annual basis of 80% of the past 20 years.
Holmes highlighted two significant trends that could support the gold outlook. For instance, the growing middle class in emerging markets exhibits a penchant for gold demand as a safety play and jewelry. Indian women own six times more gold than what is held in Fort Knox. Gold priced in the Turkish lira currency has doubled in the past 12 months, providing people with a better store of wealth.
Currently, several global factors are affecting the gold outlook. Holmes highlighted the ongoing conflict or geopolitical risk stemming from the Russia-Ukraine war that has contributed to gold’s safe-haven appeal. There is also ongoing renewed investor interest in “real” or “decentralized” assets, such as cryptocurrencies, to diversify away from inflation risks. Meanwhile, the Federal Reserve is raising interest rates, which could negatively weigh on hard assets.
Holmes also underscored the elevated inflationary environment after world governments printed out money to combat the recent Covid-19 pandemic-induced recession. Total global debt has surpassed $300 trillion as of 2021. Meanwhile, public debt in the United States has hit $30 trillion, compared to $8.1 trillion back in 2005. Currently, the U.S. debt-to-GDP ratio hovers around 133.3%.
Holmes added that gold has historically performed well during higher inflation and rising rates environments. Additionally, physical gold and gold equities have helped offset market losses or cushioned the fallout from broad market declines.
Holmes specifically highlighted the benefits of gold miners in today’s market environment, especially given their undervalued pricing. Since the COVID pandemic, paper gold ETFs have seen inflows of $23.5 billion, and the miners have seen outflows of over $1 billion.
Along with direct gold exposure, investors can consider gold miners and sector-related ETFs like the U.S. Global GO GOLD and Precious Metal Miners ETF (NYSEArca: GOAU), a smart beta offering that tracks a specialized or rules-based index to help home in on quality players in the gold mining space. The underlying U.S. Global GO GOLD and Precious Metal Miners Index uses quantitative analysis to pick stocks, with a particular focus on royalty companies.
U.S. Global believes royalty companies are a superior way to target the gold mining segment. Royalty companies are not responsible for costly infrastructure, so huge operating expenses can be avoided. These companies hold highly diversified portfolios of mines and other assets to mitigate concentration. Additionally, they generate some of the highest revenue per employee of all public companies while growing cash flows and dividends.
GOAU includes a 30% tilt to royalty and streaming companies, which could help investors better manage common risks associated with traditional producers like building and maintaining mines. The lower risk may also diminish risk since royalty companies have historically rewarded investors by increasing dividends at a faster pace than the broader equity market.
Financial advisors who are interested in learning more about the gold markets can watch the webcast here on demand