All that glitters is gold
It was recently reported that a man in the United Kingdom sold all his investments and bought almost $2 million in gold bars and buried them in his backyard. He had lost faith in the market and with some major risk catalysts looming, many would sympathise with his doomsday outlook. In 2016 gold has been a standout performer but more than the metal itself, investing in the companies that dig it up has delivered the most glittering prize.
The gold price peaked above US$1,300 per ounce in June and now appears to be in the early stages of a new bull market. While the gold price has increased 20 per cent this year, it still remains 30 per cent below the US$1,900 high of 2011. While gold has risen 19% this year, the NYSE Arca Gold Miners Index which includes the largest and most liquid global gold mining companies, has risen 85% (Source: Bloomberg, Figures in Australian dollars, calendar year to 22 June 2016).
A higher gold price largely correlates to investors’ increasing unease about a weakening global financial system. Investors are realising that central bank policies lack efficacy and have run their course without accomplishing their intended results. Central banks appear to be running out of options to stimulate economies.
More recently, the gold price has moved to the beat of the US Federal Reserve’s rate hike signal as investors continue to anticipate the timing of a rate increase sometime this year. Disappointing economic data also continues to fuel uncertainty and support a shift to gold as a safe haven asset.
As a result of these factors, the gold price has been consolidating in the US$1,200 to US$1,300 per ounce range since early March but it now appears likely to remain above the technically and psychologically important US$1,200 per ounce level and is poised to enter a new prolonged bull market as the year progresses.
Many investors invest in gold by buying gold bars but we don’t suggest buying and burying these in your backyard or storing them in a bank vault for that matter. The costs of storing and insuring gold eats away at returns from the metal.
Savvy investors prefer to purchase gold miners’ equities as their value historically rises more when the gold price rises. In addition, gold miners’ shares pay dividends instead of incurring holding costs. This year we have seen gold equities rise by a factor of more than four (85%) compared to the 19% rise in the gold price.
Another factor contributing to this year's spectacular rally by the gold miners is that gold mining businesses are in a much better position than they were a few years ago. They have successfully slashed costs, cut debt, gained efficiencies and generated cash.
Gold companies are shifting their focus towards growth and profitability and valuations are still at historical lows, so there remain opportunities to buy assets. Exploration spending, which has been significantly reduced over the last couple of years is picking up, allowing companies to add resources and reserves and increase their chances of making new discoveries. In addition, projects that have been shelved will likely be revisited as increased cashflow and cheaper financing becomes available. Firms generally remain committed to growing profitability and returns rather than production.
Australian investors can participate in the anticipated gold bull run by investing in a Gold Miners ETF that tracks the NYSE Arca Gold Miners Index.
VanEck’s Gold Miners ETF (ASX code: GDX) gives investors instant access to the diversified portfolio of global gold mining companies that make up the NYSE Arca Gold Miners Index in a single trade on ASX.
GDX is available on ASX and is the world’s largest gold miners ETF.
With nearly 50 years of experience managing gold equities, VanEck has the longest tenure among global asset managers in the gold sector.
If you would like more information on GDX please contact our ETF specialists on 02 8038 3300 or email us at info@vaneck.com.au
IMPORTANT NOTICE: Issued by VanEck Investments Limited ABN 22 146 596 116 AFSL 416755 (‘VanEck’). VanEck is a wholly owned subsidiary of Van Eck Associates Corporation based in New York, United States. VanEck Vectors ETF Trust ARBN 604 339 808 (the ‘Trust’) is the issuer of shares in the VanEck Vectors Gold Miners ETF (‘US Fund’). The Trust and the US Fund are regulated by US laws which differ from Australian laws. Trading in the US Fund’s shares on ASX will be settled by CHESS Depositary Interests (‘CDIs’) which are also issued by the Trust. The Trust is organised in the State of Delaware, US. Liability of investors is limited. Van Eck Associates serves as the investment adviser to the US Fund. VanEck, on behalf of the Trust, is the authorised intermediary for the offering of CDIs over the US Fund’s shares and issuer in respect of the CDIs and corresponding Fund’s shares traded on ASX.
This is general information only and not financial advice. It does not take into account any person’s individual objectives, financial situation or needs. Investing in international markets has specific risks that are in addition to the typical risks associated with investing in the Australian market. These include currency/foreign exchange fluctuations, ASX trading time differences and changes in foreign regulatory and tax regulations. Before making an investment decision in relation to the US Fund you should read the PDS and with the assistance of a financial adviser consider if it is appropriate for your circumstances. The PDS is available at www.vaneck.com.au or by calling 1300 68 38 37.
Past performance is not a reliable indicator of future performance. No member of the VanEck group of companies or the Trust gives any guarantee or assurance as to the repayment of capital, the payment of income, the performance or any particular rate of return from the US Fund.
An investment in the US Fund may be subject to risks that include, among others, competitive pressures, dependency on the price of gold and silver bullion that may fluctuate substantially over short periods of time, periods of outperformance and underperformance of traditional investments such as bonds and stocks, and natural disasters, all of which may adversely affect the US Fund. Foreign investments are subject to risks, which include changes in economic and political conditions, foreign currency fluctuations, changes in foreign regulations, and changes in currency exchange rates that may negatively impact the US Fund’s return. Small- and medium- capitalisation companies may be subject to elevated risks. The US Fund’s assets may be concentrated in a particular sector and may be subject to more risk than investments in a diverse group of sectors.
NYSE Arca Gold Miners Index® (‘GDMNTR’), a trademark of NYSE Group Inc. or its affiliates (‘NYSE’), is licensed for use by VanEck in connection with the US Fund. The US Fund is not sponsored, endorsed, sold or promoted by NYSE and NYSE makes no representation as to the accuracy and/or completeness of GDMNTR or results to be obtained by any person from using GDMNTR in connection with trading the US Fund.
Published: 09 August 2018
