Strengths
- The best performing precious metal for 2021 was gold, but still down 3.64%. During the first quarter of 2022, the yellow metal continued to advance, particularly following calls from the Federal Reserve to raise interest rates faster.
- According to company reports, gold exploration budgets increased 43% year-over-year to a total of $6.2 billion in 2021. There were more than 200 additional companies exploring for gold in 2021 than in 2020, and the number has the potential to rise by the end of 2022, according to financial forecasts.
- Total known ETF holdings of gold surged 5.30% in March 2022 to over 105.7 million ounces with the onset of the Russian invasion of Ukraine as investors looked for potential stores of value. Sales by the U.S. Mint of American Eagle gold coins surged 74% to 155,500 ounces in March 2022 compared to February 2022 and noted annual year-over-year sales were up 3.5% in the first quarter.
Weaknesses
- Palladium was the worst performing precious metal in 2021, down 22.35% for the year and headed into the first quarter of 2022. Substitution for palladium by platinum has been seen as the “cure for high prices” by some investors, reports Bloomberg, and has become a stronger force.
- Although gold ETFs have been one of 2022’s most popular investments, according to Bloomberg data, investors purchasing only physical gold ETFs (rather than miners and explorers) may face an unexpected tax burden. As explained by Bloomberg economists, funds that invest in precious metals like physical gold and silver are treated like collectibles for U.S. tax purposes.
- At the end of March 2022, Pure Gold Mining Inc. said that it is seeking additional financing in the next 30 days to fund operations and service interest on its debt, and that it requires around $50 million in external financing over the next six months. The company said that if the additional financing were not received in the short term, it would not be able to meet its obligations, resulting in a default.
Opportunities
- Merger and acquisitions (M&As) started to surface again in the gold space during the first quarter, despite the volatile price action that comes following Russia’s invasion of Ukraine.
- The gold industry is betting that blockchain technology could help keep illicit bullion bars out of the international market. The London Bullion Market Association (LBMA) and World Gold Council (WGC) are developing a digital system to track gold through the supply chain, the organizations said in a joint statement. Using blockchain-backed technology, the “Gold Bar Integrity Program” is designed to capture the transaction history of bullion from mine to vault, they said.
- According to a report by Jeffries Group in the first quarter of 2022, shares in mining companies have the potential to outperform over the next three years on the back of numerous earnings upgrades. The U.S. bank explains that decarbonization-driven demand and cyclical consumption growth could lead to higher prices for some key commodities (including precious metals) between now and the year 2025.
Threats
- Russia’s invasion of Ukraine could further shift investment from palladium to platinum if Russian supplies remain off the market. South Africa is one of the few countries that could benefit in the near term from the shift in markets.
- Traders have priced in additional interest rate hikes in 2022. According to Bloomberg, the shift came after an economist at Citigroup predicted that multi-decade high inflation would trigger the Federal Reserve to boost its rate hikes to 50 basis points at each of the next four meetings.
- Kinross Gold announced that it is suspending Russian operations. The company’s Kupol mine was expected to produce 35,000 ounces which represents about 13% of total production.
Looking to gain exposure to a wide-ranging portfolio of companies within the gold mining industry, including production and gold royalty companies? Look no further!
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor
Please carefully consider a fund’s investment objectives, risks, charges, and expenses. For this and other important information, obtain a statutory and summary prospectus for GOAU here. Read it carefully before investing.
Disclosures: Investing involves risk, including the possible loss of principal. Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the funds. Brokerage commissions will reduce returns. Because the funds concentrate their investments in specific industries, the funds may be subject to greater risks and fluctuations than a portfolio representing a broader range of industries. The funds are non-diversified, meaning they may concentrate more of their assets in a smaller number of issuers than diversified funds. The funds invest in foreign securities which involve greater volatility and political, economic and currency risks and differences in accounting methods. These risks are greater for investments in emerging markets. The funds may invest in the securities of smaller-capitalization companies, which may be more volatile than funds that invest in larger, more established companies. The performance of the funds may diverge from that of the index. Because the funds may employ a representative sampling strategy and may also invest in securities that are not included in the index, the funds may experience tracking error to a greater extent than funds that seek to replicate an index. The funds are not actively managed and may be affected by a general decline in market segments related to the index. Gold, precious metals, and precious minerals funds may be susceptible to adverse economic, political, or regulatory developments due to concentrating in a single theme. The prices of gold, precious metals, and precious minerals are subject to substantial price fluctuations over short periods of time and may be affected by unpredicted international monetary and political policies. We suggest investing no more than 5% to 10% of your portfolio in these sectors.
Fund holdings and allocations are subject to change at any time. Click to view fund holdings for GOAU.
The companies mentioned in this writeup that are not held by the GOAU ETF include the following: Kinross Gold, Pure Gold Mining.
Distributed by Quasar Distributors, LLC. U.S. Global Investors is the investment adviser to GOAU.
Basis points (BPS) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01%, or 0.0001, and is used to denote the percentage change in a financial instrument.