The Gold and Precious Metals Fund had a total negative return of 8.57% in the third quarter of 2022, outperforming its benchmark, the FTSE Gold Mines Index, which had a negative return of 14.26%. 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 biggest contributor to fund performance was its underweighting of Newmont, overweighting in Aya Gold & Silver and overweighting in K92 Mining. Currency hedges on the Canadian dollar and Australian dollar were our fourth best contributor. With our underweighting of Newmont and its share price decline of 28.65%, this contributed 393 basis points (bps) of relative performance to the fund. Newmont is the largest member of the benchmark.
- The second-best contributor to the fund’s performance was overweighting Aya Gold & Silver, which yielded 132 bps of relative performance to the fund. Aya is currently not a member of the benchmark. The company is poised for further production growth in a mining district in Morocco that has never had modern mining operations until a new mining law was written.
- The third-best contributor to the fund’s performance was overweighting K92 Mining, which only declined 4.55% for the quarter, yielding 121 bps of relative performance. K92 Mining is currently not a member of the benchmark. The company is poised for further production growth, self-funded from current production, and there is significant resource growth potential.
- The largest detractor to fund performance was its underweighting of Agnico-Eagle Mines, underweighting of Barrick Gold and overweighting of Superior Gold. The largest detractor from fund performance was its underweighting of Agnico-Eagle, which averaged 1.42% of the fund, relative to the benchmark at 12.81%, and fell by 82%, thus impacting the fund by 81 bps.
- The second largest detractor from fund performance was its zero-weighting of Barrick Gold, relative to the benchmark at 18.36%, which declined 10.51% for the quarter, detracting 77 bps of relative performance. Barrick Gold is the second largest member of the benchmark.
- The third largest detractor from fund performance was the overweighting of Superior Gold, which fell 54.26%. With our average weighting at 1.40%, the position detracted 77 bps from the fund relative to its benchmark. In August, Superior Gold reported a loss in the second quarter.
While gold is a traditional haven in times of economic distress, the precious metal has slumped in the face of the U.S. dollar’s relentless gains and hawkish moves by central banks. Bullion has entered a bear market, trading at a level 20% below its record high in 2020, alongside consistent outflows from exchange-traded funds (ETFs) backed by it. “We don’t see any revival until at least the first half of 2023—a meaningful Fed pivot or consensus on the magnitude of a U.S./global recession would be needed,” UBS Global Wealth Management strategists including Wayne Gordon wrote in a note. “Current dynamics could see prices drop into the low-to-mid $1,500s.”
Investor feedback has turned slightly more bullish for gold, citing a combination of (1) Fed hikes slowing/peaking, which is mathematically supportive for gold in the gold/inverse real rate equation and assumes inflation stays above trend (implies real-rates continue to see negative pressure); (2) continued inflation risk; and (3) a continued geopolitical safe-haven bid, with recent saber rattling in China, ongoing Russia war and overall economic uncertainty in the European Union (EU) and China.
Deal flows for the royalty sector remain strong, with increased complexity in deal investment structures, partly due to intense competition between royalty companies for quality assets, and $1.2 billion of transactions announced since June 2022. Year-to-date, $2.9 billion has been deployed (one of the highest years on record), driven by sector consolidation. The current deal pipeline remains focused on precious metals streams and development projects.
Silver has continued to struggle, underperforming gold YTD with the silver/gold ratio creeping higher toward 100:1. The market continues to focus on the U.S. Federal Reserve and other central banks for near term price direction, and expect volatility to prevail until there is more certainty on inflation, real rates, and recession risks.
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. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.
There is no guarantee that the issuers of any securities will declare dividends in the future or that, if declared, will remain at current levels or increase over time.
The term long-term equity anticipation securities (LEAPS) refers to publicly traded options contracts with expiration dates that are longer than one year, and typically up to three years from issue. A basis point, or bp, is 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% (0.0001). Return on invested capital (ROIC) is the amount of money a company makes that is above the average cost it pays for its debt and equity capital.
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 6/30/2022: K92 Mining Inc. 13.48%, Evolution Mining Ltd. 0.00%, Newmont Corp. 1.33%, Agnico Eagle Mines Ltd. 1.43%, DDH1 Ltd. 1.97%.
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.