The US Global Go Gold and Precious Metal Miners ETF share price has climbed as the falling US dollar boosts the price of commodities. While the price of gold itself has fallen in recent months, the fund’s exposure to mining firms and other metals production companies has supported the ETF’s price overall.
- A falling US dollar is good news for the price of commodities, as it leads to increased demand
- Many of the top holdings in the US Global Go Gold and Precious Miners ETF have reported resilient results in recent months
- The fund has significant exposure to gold, which is known as a strong inflation hedge
The US Global Go Gold and Precious Metal Miners ETF [GOAU] share price has risen 18.6% in the past month, as the price of gold and other precious metals has bounced back. The fund has been boosted by the strong performance of many of its top holdings, which include Wheaton Precious Metals Corporation [WPM], Franco-Nevada Corporation [FNV] and Royal Gold [RGLD].
The fund primarily invests in companies which engage in the production of these metals, either through mining and production, or through owning royalties contracts (where a firm will provide financing to help set up or run a mine, in exchange for a percentage of the revenue generated by that mine).
By investing in companies that use the passive royalty model, their operating costs can be significantly reduced, leading to very high margins. This has benefited many of the fund’s holdings in recent times, as they have retained strong profitability.
In terms of location, more than 50% of the fund’s holdings are in Canada, whereas 18.7% are in South Africa and 13% are in the US. The fund owns 29 different holdings.
Positive results among the GOAU’s top holdings
Although the price of gold has fallen from the over $2,000 per ounce price it commanded in March to its current price of $1,761 per ounce, the fund’s top holdings have still posted resilient results.
Take Wheaton Precious Metals, which is the fund’s top holding with a 10% weighting. The firm recently announced that, in the nine months ending 30 September, its net earnings had increased to $503m from $463m the previous year. This was despite a drop in revenues. As a result, the Wheaton share price has managed to soar 16.5% in the past month.
Another strong performer is Royal Gold (making up 9.5% of the fund), which increased its quarterly dividend by 17% to $0.35 per share. This is a major sign of confidence in the prospects of the company. At the same time, Royal Gold also repaid $50m in debt, leading to a far healthier balance sheet. This has boosted the stock by 12.6% in the past month.
Franco-Nevada Corporation (which makes up 9.6% of the fund), has also been performing very well. In fact, in its Q3 trading update it reported record revenue of $352.3m, net income of $196.5m and adjusted EBITDA of $301.2m year-to-date. This has seen the stock increase 18.02% in the past month.
What is driving GOAU's performance?
As most of the US Global Go Gold and Precious Metal Miners ETF's holdings have significant exposure to the price of gold, this is the main factor driving the fund’s performance. In fact, since the start of November, the price of gold has managed to rally from $1,600 per ounce to around $1,750. This has come as the US dollar has started to weaken.
There is also further sentiment that the US dollar may have reached its peak and could weaken further. According to recent October data, US inflation was ‘only’ 7.7%, and below the 8% forecast. This may set the stage for less interest rate hikes by the US Federal Reserve, a factor which can weaken the US dollar further. This has further boosted the price of precious metals and gold.
As a strong inflation hedge, gold is likely to continue to see increased attention from investors. This will likely have a positive impact on the US Global Go Gold and Precious Metal Miners ETF’s share price.
Analysts unsure about the prospects of GOAU
Unfortunately for the GOAU, some analysts do not believe that the recent hike in the price of gold will last. According to the British research firm Metals Focus, it expects the average price of gold to drop 10% in 2023, reaching a bottom of around $1,500 an ounce.
However, analysts remain confident about the fund’s top holdings. According to MarketWatch, Wheaton has 14 ‘buy’ ratings and three ‘hold’ ratings. Its average price target of $47.76, this implies an upside of 24.1% on Friday’s closing price.
Also according to MarketWatch, Franco-Nevada Corporation has moderately positive analyst ratings, with four ‘buy’ recommendations, three ‘hold’ and one ‘sell’. With an average price target of $151.63, this implies a slightly smaller upside of 4.9%.
Disclaimer Past performance is not a reliable indicator of future results.
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