“GOAU is a dynamic, rules-based ETF that seeks to invest in both junior and senior metal miners with strong balance sheets and skilled management teams. Companies that rely primarily on debt to finance their business are eliminated from the index,” according to a U.S. Global note.
Royalty Companies May Be a Better Way to Access Gold Production
Furthermore, the ETF includes a 30% tilt to royalty and streaming companies, which could help investors better manage common risks associated with traditional producers, such as building and maintaining mines, among others. 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.
“GOAU is also unique for potentially having as much as a 30 percent weighting in gold royalty companies, which we consider to be the ‘smart money’ of the metals and mining space,” according to U.S. Global. “Royalty companies tend to be good allocators of capital and take on very little debt. In the past, these firms have enjoyed much of the upside when metal prices were rising, but because they’re not the ones doing the actual mining, they can avoid huge operating costs.”
Looking ahead, market and economic factors could contribute to safe haven demand for gold and help support the gold mining segment. For instance, rate hikes, central bank monetary policies, geopolitical risks and surprise actions from President Donald Trump can add to uncertainty.
Meanwhile, fundamentals like rising inflation and gold supply concerns may contribute to stronger pricing. Gold may be past its peak supply as exploration budgets have collapsed. Gold miners are also finding fewer large deposits, which have further weighed on the supply outlook.
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