Precious metals have long been reliable investments in the face of rising prices for consumer goods. However, gold and silver prices have declined this week as the investors anticipated the Fed’s policy decision in response to the latest inflation report. But despite seemingly heading for a fourth straight decline this week, spot gold prices rose 0.1% to $1,776.23 per ounce, while spot silver prices gained 0.2% to $21.97 an ounce on December 10.
Analysts at the investment banking firm Société Générale S.A (SCGLY) expect gold prices to trade at around $1,900 per ounce by the second quarter of 2022 because they do not anticipate interest rate hikes before then despite the Fed’s hawkish stance. In addition, inflation has accelerated at its fastest pace since June 1982, with the Consumer Price Index (CPI) rising 6.8% year-over-year for November, which could make precious metals a better store of value than the greenback.
Hence, we think it may be reasonable now to invest in the gold and silver ETFs of SPDR Gold Shares (GLD), VanEck Vectors Gold Miners ETF (GDX), iShares Silver Trust (SLV), and Global X Silver Miners ETF (SIL) as a hedge against the rising inflation.
Click here to check out our Gold and Silver Industry Report for 2021
SPDR Gold Shares (GLD)
GLD as an investment aims to reflect the performance of the gold bullion price before fees and expenses. The trust holds gold bars from time to time but mostly holds shares that reflect the price performance of the gold bullion. The trust can be used as a short-term position to hedge against equity market volatility and inflation.
Tracking the LBMA Gold Price PM ($/ozt) index, as of December 9, GLD had $56.11 billion in assets under management. The fund has a 0.40% gross expense ratio , which is lower than the 0.44% category average. Over the past month, its fund flows were $470.92 million. GLD has a $165.95 NAV.
The ETF has declined marginally over the past five days to close yesterday’s trading session at $165.88, GLD has a 0.09 beta.
VanEck Vectors Gold Miners ETF (GDX)
GDX seeks to replicate the performance of the NYSE Arca Gold Miners index before fees and expenses. The non-diversified fund usually invests 80% of its total assets in depositary receipts and common stocks of the gold mining industry, thereby delivering an ‘indirect’ exposure to gold prices.
As of December 9, the fund had $13.10 billion of total net assets and has an expense ratio of 0.51%, versus the 0.46% category average. The fund’s top holdings, as of November 30, included Newmont Corp. (NEM), with a 13.73% weighting, Barrick Gold Corporation (GOLD), with 10.57% weighting, and Franco-Nevada Corporation (FNV), with 8.22% weighting . Over the past month, its fund flows were $64.87 million.
GDX pays a $0.19 annual dividend, which yields 0.55% at the prevailing share price. Its dividend payouts have increased at a 2.6% CAGR over the past three years and 10.4% CAGR over the past five years. The ETF has declined marginally over the past five days to close yesterday’s trading session at $30.68. The fund has a $33.12 NAV and a 0.72 beta.
iShares Silver Trust (SLV)
SLV aims to reflect the performance of the price of silver before payment of the trust expenses and liabilities. SLV is passively managed. In addition, the trust does not engage in any activities to profit or reduce losses caused by silver price changes. The fund is appropriate for short-term traders.
SLV tracks the LBMA Silver Price ($/ozt) and has a 0.50% expense ratio, versus the 0.44% category average. With $12.16 billion in assets under management as of December 9, SLV’s fund flows came in at $190.12 million over the past year. SLV has a 1.16 beta.
The ETF has declined 2.2% intra-day to close yesterday’s trading session at $20.30. SLV has a $20.58 NAV.
Global X Silver Miners ETF (SIL)
SIL seeks to provide investment results and price and yield performance corresponding to the Stuttgart Solactive Global Silver Miners Total Return Index before fees and expenses. The fund invests at least 80% of its total assets in securities of the index, in ADRs and GDRs.
With $1.07 billion in assets under management, as of December 8, SIL’s top holdings included Wheaton Precious Metals Corp. (WPM) with a 23.82% weighting, Polymetal International PLC (POLY.L) with a 10.92% weighting, and Pan American Silver Corp. (PAAS) with a 9.62% weighting. It has a 0.65% expense ratio, versus the 0.46% category average. Over the past month, its fund flows came in at $21.87 million.
SIL pays a $0.91 annual dividend, which yields 2.20% at the prevailing share price. Its average four-year yield currently stands at 1.25%. In addition, its dividends have increased at a 420.1% CAGR over the past three years. Moreover, SIL has had three consecutive years of dividend growth. SIL has a 1.02 beta.
SIL has gained marginally over the past five days to close yesterday’s trading session at $35.88. It has a $36.81 NAV.
Click here to check out our Gold and Silver Industry Report for 2021
GLD shares were trading at $166.57 per share on Friday afternoon, up $0.69 (+0.42%). Year-to-date, GLD has declined -6.61%, versus a 26.72% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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