ESG-Screened Gold Miners ETF Report | Apr 2024

Gold Mining ETF Macro Outlook

Gold’s price went up by 13.2% in 2023 and has already increased by over 11% this year. We are now seeing gold consistently reach new all-time highs, having broken out of a more extended consolidation phase. As a result, all those who are invested in gold have made a profit, fostering a favourable investment atmosphere and setting the stage for new record highs in the future.

Our aggressive target in our “Gold Outlook 2024” of 2,475 USD per troy ounce now seems almost conservative. Even JPMorgan issued a price target for gold at 2,500 USD during the month. When major banks like JPMorgan and Goldman Sachs become positive on commodities, it usually results in increased allocation from all banks and their clients worldwide. This leads to a gradual investor rotation and, thus, strong capital flows into the sector, which will be a positive factor moving forward.

What is happening? Expected cuts in interest rates often lead to an increase in the price of gold. Such a cycle of rate reductions tends to weaken the dollar, which benefits gold as it increases demand from buyers in Europe and Asia. The Federal Reserve is holding off on rate cuts for as long as it can, but it has already begun injecting stimulus into the economy through what is known as “backdoor quantitative easing,” evident in the growing monetary base (see the chart above). It’s also important not to overlook the substantial and questionable fiscal stimulus in the USA, which has led to a budget deficit of 6-8 percent, all in the pursuit of reaching an increase in economic growth.

There are always risks after quick and large price increases. Yet, this particular rise in value hasn’t been widely noticed, and until March, the sentiment among precious metals investors was very low. Historically, such conditions are considered an ideal time to start investing or to add to existing investments. Naturally, we can expect some price drops along the way before prices start climbing again.

Yet, the greatest potential for returns may not be in gold but rather in silver, and the companies mining precious metals, as we have seen during March. The rise in the cost of extraction has curbed these companies’ results and returns during the rise in commodity prices over the last 6 to 12 months. Now, with costs levelling off and the prices of gold and silver remaining strong, these companies are beginning a phase of increased profitability and robust free cash flows. This situation creates a significant leverage effect, where the increase in profit margins could be dramatic in the future.

The year 2024 is an Olympic year, making it a time when gold will be in the spotlight, not just as a valuable commodity but also as a symbol of triumph in the form of medals. A fun fact is that Olympic years coincide with leap years, and interestingly, February 29 was the day when the precious metals market began to accelerate. So, indeed, gold will be in the centre stage throughout the year.

The first modern Olympic Games took place in Athens in 1896, with only nine sports on the program: cycling, fencing, gymnastics, weightlifting, shooting, athletics, swimming, and wrestling. Paris was the venue for the Olympics in 1900 and again in 1924. Now, a century later, Paris is set to host its third Summer Olympics. In the initial Games up to the 1912 Stockholm Olympics, gold medals were made of pure gold. Today, they are predominantly made of silver (sterling silver with a 92.5% silver purity) with just around 6 grams of gold.

Sources available upon request.

Gold Mining ETF Performance
As of 31.03.2024

1M3M6MYTD12M3YSI
AuAg ESG Gold Mining UCITS ETF (ESGO)20.30%-5.18%11.13%-5.18%-8.86%N/A-12.93%
Solactive AuAg ESG Gold Mining Index20.38%-5.06%11.48%-5.06%-8.31%-6.46%-11.51%

Please note that all performance figures are showing net data. Source: Bloomberg / HANetf. Data as of 31/03/2024

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 ‘Risk Factors’ for further details of risks associated with an investment in this product. When you invest in ETFs your capital is at risk.