Continued rate increases may not bode well for higher gold prices, but miners have other factors going their way, including the potential for increased profit margins, according to a Reuters report. This created opportunity in the WisdomTree Efficient Gold Plus Gold Miners Strategy Fund (GDMN).
Amid high inflation, gold miners suffered along with the rest of the broad market. However, easing energy costs as well as labor costs could benefit the bottom line, which could reflect in fourth-quarter earnings reports.
“Gold miners are set to report healthier margins for the fourth quarter as higher energy and labor costs, which dented bottom-lines for much of 2022, are expected to ease,” the Reuters report said, noting that all-in sustaining costs (AISC), an industry metric that indicates total expenses, jumped by over 30% in the final four quarters at industry leaders Barrick Gold Corp and Newmont Corp. That number is now expected to fall, which should boost profitability.
“Costs on the gold side are down a little bit, so we should see better margins in Q4,” said Carey MacRury, analyst at Canaccord Genuity.
“So, it’s really just higher production, slightly lower cost and the flat gold price,” MacRury added, forecasting that margins should have been better in the October–December period versus the previous quarter.
A confluence of other issues that hurt miners last year shouldn’t be their bane this year, such as COVID-19, which led to labor shortages. A major gold market mover, interest rates, are also expected to subside as the U.S. Federal Reserve could slow down its pace of rate hikes in 2023.
“Most of the damage (from interest rate hikes) was done in 2022,” said MacRury.
Benefit From Future Upside in Gold Prices
Gold prices have risen over 30% in the past five years, opening the door for miners to benefit from the price increase. If that’s the case, then GDMN could stand to benefit from future upside.
GDMN offers exposure to both gold miners equities and enhanced exposure to gold through leveraged futures contracts. It’s a fund that can enhance diversification within portfolios through both gold miners and gold futures which can provide a potential hedge against inflation.
Furthermore, the fund is actively managed and uses a model-based approach in investing in U.S.-listed gold futures contracts and global equity securities that derive 50% or more of their revenue from gold mining. GDMN also uses U.S.-listed gold futures contracts to enhance the fund’s capital efficiency according to the prospectus.
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