Tariffs continue to be a wild card. Anxiety gripped the markets on Tuesday, pushing the price of gold past the $3,500 mark en route to a new all-time high.
The U.S. Supreme Court dazed markets by agreeing with a federal appeals court ruling that a majority of tariffs instituted by U.S. president Donald Trump were illegal. However, most expect a challenge to uphold them by the administration. As the legal back-and-forth on tariffs continue, investors scrambled towards safe haven assets like gold.
The market reaction is another reason to consider gold exposure. An easy way is via the Sprott Physical Gold Trust (PHYS), which allows investors to gain exposure to the rising price of gold with the option to exchange shares for actual bullion.
Countering Market Mania
Also in the market undercurrents, large cap growth names continue to build momentum behind the artificial intelligence theme. However, is there too much euphoria surrounding Magnificent Seven names? To defend against an extreme market correction, gold miners could offer an ideal ballast for portfolios.
In a Sprott Gold Report “A Cure For Financial Dementia,” John Hathaway, senior portfolio manager at Sprott Asset Management, noted the similarities between today’s markets and previous market manias of the past: investment trusts in the 1920s, “Nifty Fifty” stocks in the 1970s, dot-com startups in the late 1990s, and mortgage-backed securities in 2007.
“The signs include extreme market concentration, leverage and delusional extrapolation of the benefits of whatever happens to be the current craze,” said Hathaway, He suggested that in today’s market, investors should have healthy exposure to cash, gold bullion, and gold miners.
“For those wishing for stronger countermeasures to generate positive investment returns from FMDS (financial market derangement syndrome), we suggest significant exposure to precious metals mining equities,” Hathaway said.
That strength in gold miners hasn’t waned as the end of summer draws closer. The NYSE Arca Gold Miners Index is now up almost 90% as mining companies like Newmont Corporation and Agnico Eagle Mines continue to post strong earnings behind gold’s rally this year.
“Gold miners are generating record profits and cash flow,” Hathaway added. “Their balance sheets are flush. Industry leaders, including Newmont Corporation and Agnico Eagle Mines Limited, are promising to return surplus capital to shareholders.”
^GDM data by YCharts
A Mining Option
One of the best ways to get exposure is ETFs that encompass the biggest and brightest in the industry. With that, the Sprott Gold Miners ETF (SGDM) is worthy of consideration—its top two holdings are the aforementioned Newmont Corporation and Agnico Eagle Mines. It tracks the Solactive Gold Miners Custom Factors Index, providing exposure to large cap gold miners trading on Canadian and U.S. stock exchanges. The index selects constituents according to a rules-based methodology. It seeks companies exhibiting the highest revenue growth, free cash flow metrics, and the lowest long-term debt to equity. As such, only quality holdings make it into SGDM.
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Disclosures
An investor should consider the investment objectives, risks, charges, and expenses carefully before investing. To obtain a Prospectus, which contains this and other information, contact your financial professional or call 888.622.1813. Read the Prospectus carefully before investing, which can also be found by clicking one of the links below.
Past performance is no guarantee of future results. One cannot invest directly in an index.
Gold and precious metals are referred to with terms of art like “store of value,” “safe haven” and “safe asset.” These terms should not be construed to guarantee any form of investment safety. While “safe” assets like gold, Treasuries, money market funds and cash generally do not carry a high risk of loss relative to other asset classes, any asset may lose value, which may involve the complete loss of invested principal.
Funds that emphasize investments in small/mid-cap companies will generally experience greater price volatility. Diversification does not eliminate the risk of investment losses. ETFs are considered to have continuous liquidity because they allow an individual to trade throughout the day. A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses, affect the Fund’s performance.
Sprott Asset Management USA, Inc. is the Investment Adviser to the ETFs. ALPS Distributors, Inc. is the Distributor for the ETFs and is a registered broker-dealer and FINRA Member. ALPS Distributors, Inc. is not affiliated with Sprott Asset Management USA, Inc. or VettaFi.
Exchange Traded Funds (ETFs): SETM, LITP, URNM, URN, COPP, COPJ, NIKL, SGDM and SGDJ
Physical Bullion Funds: PHYS, PSLV, CEF, and SPPP
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