ESG-Screened Gold Miners ETF Monthly Report | December

Gold Mining ETFMacro Outlook | December

The market constantly looks for signals about when the Federal Reserve might start to lower interest rates. Perhaps we received the clearest indication last Friday during a Q&A session with Fed Chairman Jerome Powell. Several markets reacted to this and here we naturally focus on the gold market. Gold as a precious metal is central to us.

Gold also had its highest monthly closing ever on the last day of November. On the first day of December gold closed at $2072 per troy ounce. Gold has now set a new all-time high (ATH) in all major currencies most recently in euros and dollars during Monday’s large market movements. Gold has been strong again this year +13.6% (USD) with one month left. It may still require a bit of a gold rush to reach the target in our Gold and Mining Outlook 2023. There we wrote a year ago that we saw a potential increase of +20% for the gold price ($2188).

Currently there are numerous factors favouring gold investment. The Federal Reserve will likely reduce interest rates in 2024 and there’s a possibility that these cuts could occur sooner and more rapidly than previously anticipated. Consequently a diminishing value of the dollar is projected which typically leads to an increase in the value of gold when measured in U.S. dollars.

Once gold breaks through and stays above $2100 it can rise very quickly. The coming years will be a formidable secular bull market for precious metals. During these years it is likely that the gold to silver ratio (the gold price divided by the silver price) which is now 81:1 will go towards 30:1. With a gold price in a few years at $3000 (+44%) the silver price would then be $100 per troy ounce (+292% against today’s price of $25.5). Companies that extract precious metals have performed from +500% to +1000% in previous secular bull markets. It would therefore not be strange if they did it again now. As gold and silver investors we have exciting times ahead of us.

But what actually drives the price of gold? It is simply the continued creation of credit and debt in the financial system. We should therefore not forget that even if the Fed has temporarily tightened (monetary policy) the USA has acted stimulatively through fiscal policy instead. The USA is now financing itself with a huge budget deficit of more than 6% of GDP.

Typically politicians are averse to enduring difficult periods even if these may lead to improved conditions in the future. This is because the risk is very high that they will not be re-elected and power is as everyone knows binary. Reducing stimuli and support measures is highly unpopular because it immediately affects voters. This makes it likely that they would instead resort to stimuli and spend money they do not have to keep the wheels turning.

We conclude with a very telling quote from Charlie Munger one of our time’s greatest investors who left us at age 99. Show me the incentive and I will show you the outcome.Using diversification in one’s portfolio with assets that have low correlation is always important. But especially now when the concentration risk in the market and the geopolitical risk is so high. We conclude with the famous words from the Nobel Prize-winning Harry Markowitz who passed this year (Modern Portfolio Theory 1990) Diversification is the only free lunch.

Gold Mining ETFPerformance
As of 30.11.2023

1M

3M

6M

YTD

12M

2Y

SI

AuAg ESG Gold Mining UCITS ETF (ESGO)

12.41%

7.46%

-0.21%

5.11%

7.61%

-1.70%

-8.60%

Solactive AuAg ESG Gold Mining Index

12.47%

7.58%

0.07%

5.91%

8.47%

-0.41%

-7.28%


Please note that all performance figures are showing net data.Source: Bloomberg / HANetf. Data as of 30/11/2023

Performance before inception is based on back-tested data. Backtesting is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such a strategy would have been. Back-tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance. Past performance for the index is in USD. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product. Investors should read the prospectus of the Issuer (“Prospectus”) before investing and should refer to the section of the Prospectus entitled &lsquoRisk Factors’ for further details of risks associated with an investment in this product. When you invest in ETFs your capital is at risk.

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