Gold, silver, and other important commodities have always been a store of value, providing a hedge against both inflationary and deflationary cycles. By investing in companies operating in these sectors, the fund aims to provide investors with long-term stability and real value that counterbalances the excesses of money creation.
Beyond their role as a hedge against currency devaluation, gold and silver possess intrinsic qualities that make them a sensible component of a diversified portfolio. In times of economic turmoil, geopolitical instability, or systemic financial risk, precious metals typically act as a store of wealth. Unlike fiat currencies, which can be manipulated by central bank policies, gold and silver retain their purchasing power over time, making them a crucial hedge in an environment of rising debt and fiscal uncertainty.
The fund’s approach is to gain exposure to precious metals through listed gold and silver mining stocks. Mining companies offer the potential for higher returns compared to physical precious metals, as they benefit from rising metal prices while driving growth through resource expansion, operational efficiencies, and technological advances. When the sector is out of favor with investors, the opposite is true, with downside movements amplified, making it worthwhile to be flexible. The fund’s exposure will therefore be adjusted up or down depending on market conditions.
As central banks and institutional investors continue to accumulate gold and industrial demand for silver increases in the industrial, renewable energy, and electronics sectors, precious metals miners can benefit from long-term structural trends. Furthermore, limited new supply due to declining ore grades and regulatory hurdles underscores the value of mining investments.
Through strategic allocation to gold, silver, and mining stocks, the fund aims to increase portfolio resilience, diversify risk, and position the portfolio against inflationary and deflationary cycles. The fund’s focus on these assets underscores its commitment to preserving wealth and leveraging the enduring value of precious metals.
Gold has long been a store of value, from its use as currency in ancient times to its role in central bank reserves. The 21st century has been characterized by excessive debt and money printing, which has undermined confidence in fiat currencies and government bonds. In contrast, gold remains independent of monetary systems, banks, and governments, as its value is determined by global markets.
Since the abandonment of the gold standard in 1971, gold has served as a universal reserve asset, relied upon by central banks, investors, and individuals in times of crisis. As money creation continues, we believe gold will continue to gain acceptance as a reserve currency and an anchor of purchasing power.
Many major asset classes move in tandem due to economic performance and investor sentiment. However, the price of gold is driven by other factors, resulting in a low correlation with traditional assets. This independence makes gold a valuable return diversifier within a multi-asset portfolio, providing stability when other investments falter.
Gold is a finite, tangible resource. Since 1980, the total above-ground gold supply has doubled, while the US national debt has increased 42-fold and will reach $36 trillion by November 2024. This astonishing debt explosion is beginning to unsettle the markets and threaten economic stability. Unlike paper money, gold cannot be printed, manipulated, or diluted, increasing its attractiveness as a reservoir of purchasing power.
Financial markets have long focused on traditional assets, while overlooking tangible assets like gold and silver. The Dow-Gold Ratio, which indicates how many ounces of gold are needed to buy the Dow Jones Industrial Average, peaked at 45 in 1999 during the dot-com boom, when gold prices were low. In contrast, the ratio fell to 1.29 in 1980, reflecting gold’s high relative value. Recently, gold has appreciated relative to stocks, and we expect this trend to continue.
Incorporating gold into a diversified portfolio provides a hedge during times of financial instability, as gold retains or increases its value during downturns. Our fund gains exposure to gold by investing in gold mining stocks, which currently represent a compelling opportunity due to their low relative valuation compared to the broader equity markets. The NYSE Arca Gold BUGS Index, which tracks gold stocks that do not hedge their production, serves as an important benchmark for the performance of gold mining stocks. The historically low HUI-to-gold ratio suggests that gold mining stocks remain undervalued relative to gold bullion. We believe this presents an investment opportunity because gold mining stocks will soon recover, and the ratio is likely to return to historical norms.
Our positive outlook for gold mining companies is also supported by the performance of physical gold, as rising gold prices increase mining companies’ earnings and profitability. As production costs stabilize and mining companies pursue more disciplined capital allocation strategies, the sector is well positioned for growth. We see significant upside potential for gold mining stocks in the coming years.
