The Gold and Precious Metals Fund fell 10.82% in 2021, underperforming its benchmark, the FTSE Gold Mines Index, which declined 10.38% on a total return basis. While focusing on established, gold-producing companies, the Gold and Precious Metals Fund holds a higher weighting of mid-tier stocks compared to its benchmark. See complete fund performance here.
Performance data quoted represents past performance. Past performance does not guarantee future results. Current performance may be higher or lower than the performance data quoted. The principal value and investment return of an investment will fluctuate so that your shares, when redeemed, may be worth more or less than their original cost.
The fund employed a defensive investment position from time to time in 2021 with higher-than-average cash balances on hand to protect its liquidity. However, to maintain varying degrees of investment exposure to the gold market, the fund utilized some call option positions and ETFs, which are more liquid than options, to hedge the fund’s benchmark risks and provide optionality to upswings in gold stocks.
- Aya Gold & Silver was the fund’s largest contributor to returns in 2021 year with its strong exploration results in Morocco. Aya Gold & Silver is not a member of FTSE Gold Mines Index.
- Australian Strategic Material was the second biggest contributor after being spun out of Alkane Resources in the prior year.
- Not owning any Agnico-Eagle Mines was the third best relative gainer, as this company was the fourth largest in the fund’s benchmark but delivered a return that was twice the loss tabled by the benchmark. Management seemed to pull back on exploring and instead acquired Kirkland Lake Gold just to get bigger.
- Being underweight Newmont to own other smaller capitalization companies was the biggest drag on performance.
- The second worst performing stock was Fortuna Silver Mines. The company made a significant acquisition of Roxgold, which the market didn’t appreciate. The share price also got hit by Mexico permitting authorities to question the renewal of companies’ mining licenses.
- The fund’s third largest loss came from holding Metalla Royalty and Streaming, which drifted lower over the course of the year.
- Industry consolidation began to take place more earnestly in 2021. Size matters, and that what may have been behind Agnico Eagle Mines’ bid to buy Kirkland Lake Gold. There certainly are operational synergies that can be garnered from the deal, but it does give Agnico access to Detour Lake Mine assets, which are likely to be long lived but could see some issues if energy prices rise too much.
- In another move to acquire more assets in mining jurisdictions, Newcrest Mining agreed to buy Pretium Resources in a cash and shares deal valuing the Canadian gold producer at about $2.8 billion. Newcrest and others were patient to wait out the story and really see what the mine was capable of before inking the deal. This gives Newcrest a strategic view to other major mineral discoveries in the region.
- Scarcity? Is that the new issue in the industry that the majors are contending with? Can’t find enough +10-year life mines that can produce 300,000 ounces of gold per year? That can be done by exploring or buying ounces in the ground or in the most recent example, Kinross Gold buying Great Bear, they have bought exploration. What is fascinating is that there is no publicly calculated resource on the discovery, but the drill data is available on the company’s website, so it really wasn’t a black box acquisition. But it does signal that the gold industry may be more willing to do deals more aggressively in the future. There are plenty of good assets in the junior mining and exploration industry that are likely to be on the wish list in 2022.
- Bitcoin remains a key competitor to gold. Like gold, Bitcoin functions as an absolute store of value. Most analysts expect gold to gradually decline over the next few years. The post-pandemic recovery, Fed tapering and a stronger dollar will all weigh on the metal, which could fall to $1,700 an ounce in 2022, UBS Group AG strategists, including Wayne Gordon and Giovanni Staunovo, said in a note. However, new government regulation of Bitcoin and other electronically traded crypto assets could change their desirability for ownership.
- Exchange-traded funds have been selling gold, with 2021’s net sales being 9.24 million ounces, according to data compiled by Bloomberg. Total gold held by ETFs fell to 97.82 million ounces. Rising real rates are the ultimate threat to gold prices, but there is great concern that the U.S. can withstand rising rates. Who can take the medicine? It took 20 years to leave Afghanistan, how easy is it going to be to walk away from loose monetary policy?
- Demand for platinum group metals (PGMs) is facing a decline due to the growth of battery-powered electric vehicles (EVs). Sibanye Stillwater CEO Neal Froneman said palladium could decline to about $1,000 an ounce after 2025 as automakers switch to using more platinum in auto catalysts, which are used to curb pollution from vehicles. If platinum prices rise with a pickup in fuel cell use, the change in the two PGMs prices may balance out somewhat on their income statement.
The FTSE Gold Mines Index Series is designed to reflect the performance of the worldwide market in the shares of companies whose principal activity is the mining of gold.
A call option is an option to buy an asset at an agreed price on or before a particular date.
Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the Gold and Precious Metals Fund as a percentage of net assets as of 12/31/2021: Aya Gold & Silver Inc. 5.35%, Australian Strategic Materials 1.37%, Alkane Resources Ltd. 0.47%, Agnico-Eagle Mines Ltd. 0.00%, Kirkland Lake Gold Ltd. 0.00%, Newmont Corp. 2.13%, Fortuna Silver Mines Inc. 2.77%, Roxgold Inc. 0.00%, Metalla Royalty & Streaming Ltd. 1.71%, Newcrest Mining Ltd. 0.00%, Pretium Resources Inc. 0.00%, Sibanye Stillwater Ltd. 0.00%, Kinross Gold Corp. 0.00%, Great Bear Resources Inc. 0.00%.
Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Foreside Fund Services, LLC, Distributor. U.S. Global Investors is the investment adviser.
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.
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.