The Gold and Precious Metals Fund fell 17.44% in 2022, underperforming its benchmark, the FTSE Gold Mines Index, which declined 12.75% on a total return basis. While focusing on established, gold-producing companies, the Gold and Precious Metals Fund holds less than 50% of its holdings in precious metal miners that are greater than $1 billion in market capitalization; meanwhile, the FTSE Gold Mines Index’s average market capitalization is closer to $7.5 billion. 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 2022, 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 call option positions and directional ETFs, which are more liquid than options, to hedge the fund’s benchmark risks and provide optionality to upswings in gold stocks.
- Not owning the Russian gold miner Polymetal International Plc in the fund at the start of the year significantly benefited its relative performance, as the stock plunged 77% in the first quarter with the Russian invasion of Ukraine. Polymetal was dropped from the FTSE Gold Index in the first quarter of 2022.
- Being underweight Newmont Mining, the largest member of FTSE Gold Mines Index, was our best call on relative performance as it significantly underperformed its index peers.
- The next best contributor to performance was K92 Mining Inc, which is the fund’s largest position. K92 finished the year with less than a 1% drop in price.
- Being underweight Agnico Eagle Mines Limited, following its move to take over Yamana Gold, proved to be too risk averse, as Agnico Eagle finished the year with just under a 1% gain.
- The second worst contributor to relative performance was underweighting Barrick Gold, which fell only 6.67% for the year, versus Newmont Mining, which fell 20.80%.
- The fund’s third largest loss came from owning Pantoro Gold, which had to raise equity two times in 2022 to fund the restart of the Norseman Gold Project. The company poured its first bar of gold from the mine before yearend in early October.
- Acquisitions are looked upon more strategically with the theme of consolidation of major mining camps. Agnico Eagle Mines has been the most active over the last several years with the purchase of Kirkland Lake Gold in 2021n to be followed in 2022 with a joint takeover of Yamana Gold with Pan American Silver’s taking much of Yamana’s South American asset.
- Gold Fields, and likely others, is on the hunt for new assets to replace its declining resource balance. Gold Fields made the first run at Yamana Gold, which triggered the Agnico counterbid, but it is actively looking for new assets. To the market’s surprise, it was trying to get a meaningful investment in a Canadian operation. Investors should consider what might be a second choice for Gold Fields in North America.
- Zoltan Pozsar of Credit Suisse penned an interesting report titled “War and Commodity Encumbrance” at the end of the year. At the heart of the work is how China has changed the structure of oil trade with Saudia Arabia in that the Shanghai Petroleum and Natural Gas Exchange will be fully utilizing RMB settlement in oil and gas trade, creating the dawn of the petro yuan. What will the Saudis do with all the renminbi they accumulate from selling their oil? One obvious option is to convert it into gold on either the Shanghai Gold Exchange or Hong Kong Gold Exchange, both of which have offered that convertibility option since 2016 and 2017, respectively. The new invoicing for all oil and gas in renminbi is expected to be completed over the next three to five years. Gold is likely to remain well bid as the dollar loses market share in the world energy trade.
- Jurisdiction risk is a key theme global mining companies are rethinking before committing to an investment. Russia’s war with Ukraine and trade wars with China are still major concerns. Recently, the government of Panama has introduced a new tax agreement it wants to impose on First Quantum’s copper mine that could raise its current taxes by 800%. West Africa has become a major gold producing region for the continent, but certain regions in Mali have had terrorist attacks, resulting in death.
- Historically, the gold mining sector has not had a great track record in putting together value creating synergies with a merger in recent years, with Agnico Eagle being the exception for now. There is a push to get scale with new mining projects, such as 300,000 ounces a year as a minimum hurdle, which is necessary to shoring up declining production profiles. Unfortunately, there are not enough readily available projects to meet the needs. Big projects will still need a high enough grade to endure periods of stress.
- Exchange-traded funds were accumulating gold through the first four months of 2022, taking the holdings of all known gold ETFs up to 106.7 million ounces. Since then, however, redemptions have taken the balance down to 93.8 million ounces by the close of the year. Despite inflation, there has not been a surge of money buying gold at the retail level, and interest in gold stocks remains muted by generalist investors.
The FTSE Gold Mines Index encompasses all gold mining companies that have a sustainable and attributable gold production of at least 300,000 ounces a year, and that derive 75% or more of their revenue from mined gold.
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 percent of net assets as of 12/30/2022: Polymetal International Plc 0.00%, Newmont Corp. 1.07%, K92 Mining Inc. 11.52%, Agnico Eagle Mines Ltd. 1.65%, Yamana Gold Inc. 2.46%, Barrick Gold Corp. 0.08%, Pantoro Ltd. 0.54%, Kirkland Lake Gold Ltd. 0.00%, Pan American Silver Corp. 0.00%, Gold Fields Ltd. 0.00%, First Quantum Minerals Ltd. 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.