This article was originally published on ETFTrends.com.
Taking another look at the consistently good numbers regarding gold means seeing things from multiple glistening angles. The US Global Go Gold and Precious Metal Miners ETF (GOAU) truly shines, as it has outperformed in many ways.
Speaking to ETF Trends, US Global Investors’ CEO and Chief Investment Officer, Frank Holmes goes over the difference between spot priced gold versus the miners, and why there has been twice the performance so far, year-to-date.
In buying those indexes, “Money goes into both good stocks, and bad stocks,” Holmes explains. “What we’ve done is being able to focus on the value metrics per share, so that every quarter where it's just getting rid of any stocks that’s just bad, a bad acquisition, which hurt the value metrics per share.”
This speaks to the actively managed nature of the GOAU. It’s a proper discipline that allows the fund to be, “Continually cleaning the garden all the time of weeds,” as Holmes put it.
Gold Discipline Has Been Key
GOAU only holds 28 companies, and the three royalty companies holding 30% have great financial discipline, compared to a lot of the rest of the industry. The focus for GOAU is on the carefully selected 25 other companies out of the additional 100 or so gold producers.
Putting that into perspective, with gold up to nearly 20% YTD, Holmes explains how the miners are doing so much better than gold itself. Essentially, in the previous cycle, where active funds for GOAU performance were doing great, the stock market was going up concurrently with the price of gold.
With both going up at the beginning of the year, that’s a good sign gold is going to overperform. “If you have the selective method, we’ve applied to GOAU, then you far outperform,” Holmes said.
Why Is Gold Going Up Right Now?
As it stands, the US is already at negative real interest rates, and another couple of drops will push America at negative rates similar to Europe. As Holmes explains, back in 2011 when gold was at $1900, the 10-year government bond was -300 basis points for low-rated return. The turn to +100 bases points, taking gold from $1,900 to $1,000.
Currently, the US is back to -30 basis points, and according to Holmes, it’s likely going to grow. “The world is not disciplined to cut back on fiscal policy that is lower regulations and freedom of trade. So, therefore, the deal with this tariff war and other rules and regulations is hoping that if they have zero interest rates, they can help maintain economic growth.”
In regards to Central banks, “A big swing is what we’re experiencing now. And that swing is fear. And negative field interest rates is one of those best factors for fears,” Holmes notes.
With Europe having negative rates all over, China and India’s increasing GDP making for continuous demand, and the world only growing more substantial as far as emerging markets, the rise from 25% to 40% of negative global rates, gold will rise. “And that’s the trend.”
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