Gold exchange-traded bullion and miner funds fell for most of the year, but assets like that Sprott Gold Miners ETF (NYSEArca: SGDM) gave some relief on Wednesday after the Federal Reserve’s Open Markets Committee (FOMC) signaled that interest rates will remain low for the foreseeable future.
SGDM tracks the Solactive Gold Miners Custom Factors Index and “highlights gold companies with the highest sales growth and the highest free cash flow yield as well as the lowest long-term leverage ratio,” according to the issuer.
“Gold prices (XAUUSD: CUR) located lower, then pulled higher after the Federal Reserve continues forecast interest rates close to zero until at least 2023” according to Seeking Alpha.
Gold is a popular game for investors to hedge against persistent volatility, uncertainty and inflation risks. The coronavirus pandemic has devastated economies and increased uncertainty, which has helped support gold as a safe haven. Meanwhile, the extensive fiscal and monetary stimulus measures have inundated the markets with cash and fueled demand for physical assets that can help investors maintain purchasing power.
The case for sticking to ‘SGDM’
Despite the recent sell-offs, it’s good to be in gold now. With market uncertainty ahead, the precious metal is still at the top of the list when it comes to asset selection, and investors looking to get exposure to gold can turn to ETFs to meet that need. Precious metals like gold offer investors an alternative to diversify their holdings, and like other commodities, gold will march to the beat of its own drum compared to the broader market.
SGDM is made up of global gold mining companies with a notable leaning towards Canadian and US mining companies. Stock fundamentals like cost deflation across the mining industry, stock valuations below the long-term average, and rising mergers and acquisitions also support the miner’s place.
To back up the case for SGDM, we may continue to find that several factors come into play in support of the gold market in the months ahead. First of all, economic expansion in the past has supported jewelry, technology, and long-term savings. Risk and uncertainty could further support gold demand as a safe haven. The price of competing assets like bonds, currencies, and other assets can also affect investors’ attitudes towards gold. Ultimately, capital flows, positioning, and price trends can ignite or dampen the performance of gold.
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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.