Clashes in Ukraine among other factors have helped safe havens
see a significant surge in investment. Gold prices recently hit a
new three-week high. On Monday, on the Comex division of the New
York Mercantile Exchange, Gold for June delivery rose to $1,327.50
an ounce. Currently, it stands at $1, 314.10. This reflects over
10% jump year to date. On the other hand, May Silver prices now
stand at $19.80.
Vagueness in the pace of the Fed's QE taper and the resultant
volatility in the dollar, some downbeat U.S. economic data and
geopolitical tension over Ukraine and Russia have sapped the demand
for risky assets and bolstered the need to invest in safe havens.
This flight to safety has sharpened the safe haven status of gold
and silver and resulted in such enormous gains. Increases in prices
of the yellow metal or silver will benefit miners. So, it looks an
opportune moment for investors to add some gold and silver mining
mutual funds in their portfolios.
Mining Industry - A Brief Overview
Exploration and mining is a time consuming and expensive endeavor.
Given its scarcity and remote location of deposits, exploration for
new deposits is difficult. Once an economically viable deposit is
identified, bringing a mine on line can take a decade or more, and
it requires substantial capital investment.
Moreover, the mining industry is subject to several risks and
hazards such as political conflicts, environmental hazards,
industrial accidents, unexpected geological conditions, labor
disruptions, unavailability of materials and equipment among
others. However, once the mine development project is successful,
returns can be enormously high, which more than offsets the risks
and the capital invested.
What Affects Prices?
Prices of Gold or Silver fluctuate on a daily basis and are
influenced by industrial and jewelry demand, demand as an
investment, central bank lending, volume of recycled material
available in the market, speculative trading; and costs and levels
of global gold production by gold producers.There are a number of
economic factors as well that influence prices. Over the past few
years, the price of gold has shown an inverse correlation with the
U.S. dollar. In the wake of dollar weakness, investors opt for gold
as a safe haven.
What May Happen to the Prices Now
Expectations of the future rate of inflation, interest rates; and
global or regional, and political or economic uncertainties also
affect prices. On that note, the Ukraine crisis and the eventual
Russia-West standoff seems far from resolved. Thus, the
geopolitical tensions may help the prices move further up. Also,
the Fed will sooner or later wind down its massive QE stimulus
program, which in turn should push up the dollar against a basket
of various currencies.
However, Goldman Sachs is still bearish about the Gold prices.
Goldman Sachs believes that
would drop to $1,050 an ounce by year end. According to a Bloomberg
report, Jeffrey Currie, chief gold analyst at Goldman Sachs, said:
"While further escalation in tensions could support gold prices, we
expect a sequential acceleration in both U.S. and Chinese activity,
and hence for gold prices to decline".
Performance This Year, Commodities Sector
Market Vectors Gold Miners ETF (NYSEARCA:
) has risen 16% year to date. Global X Silver Miners (NYSEARCA:
) too recorded over 16% jump in the same time frame. The uptrend
indicates the bullish stance in the sector.
Also, on a broader basis, commodities turned out to be among the
best investment options in the first quarter. Commodities were
reported to have secured the best gains among all asset classes
since 2012. The Thomson Reuters/Core Commodity CRB Index ended the
first quarter with gains of 8.7%. The S&P 500 scored gains of
just 1.3% in first-quarter 2014.
3 Funds to Buy
It is not always easy for individual investors to decide on which
mutual funds to buy. It's a good idea to focus on mining mutual
funds that have a healthy year-to-date return. Two of the funds
also have relatively lower expense ratio. Then one should zero-in
on funds that sport a Zacks Mutual Fund Rank #1 or #2. Remember,
the goal of the Zacks Mutual Fund Rank is to guide investors to
identify potential winners and losers. Unlike most of the
fund-rating systems, the Zacks Mutual Fund Rank is not just focused
on past performance, but the likely future success of the fund.
Vanguard Precious Metals and Mining
(VGPMX) invests a lion's share of its assets in domestic and
foreign companies that are mainly involved in mining, exploration
and distribution of metals. All of its assets may be invested in
foreign companies. A maximum of 20% may be invested in gold and
silver apart from precious metal bullion.
The fund has returned 7.16% year to date. The fund has an expense
ratio of 0.25% as compared to category average of 1.41%. Currently,
the fund carries a Zacks #2 Rank (Buy).
American Century Global Gold
(BGEIX) invests in securities of those global companies whose
operations are related to mining, processing and distributing gold
or other precious metals. Investments are made with the purpose of
attaining growth in capital and dividends by investing mostly in
companies which are involved in processing, mining, fabricating and
The fund has returned 14.29% year to date. The fund has an expense
ratio of 0.68% as compared to category average of 1.41%. Currently,
the fund carries a Zacks #1 Rank (Strong Buy).
Oppenheimer Gold & Special Minerals B
(OGMBX) invests in companies engaged in activities such as mining,
processing or dealing in the yellow metal and other metals or
minerals. It invests in both domestic and foreign companies
including ones from the developing or emerging economies.
The fund has returned 8.69% year to date. However, the fund has an
expense ratio of 2.09% as compared to category average of 1.41%.
Currently, the fund carries a Zacks #1 Rank (Strong Buy).
About Zacks Mutual Fund Rank
By applying the Zacks Rank to mutual funds, investors can find
funds that not only outpaced the market in the past but are also
expected to outperform going forward.
Learn more about the Zacks Mutual Fund Rank.
View All Zacks #1 Ranked Mutual Funds
Get Your Free (BGEIX): Fund Analysis Report
Get Your Free (OGMBX): Fund Analysis Report
Get Your Free (VGPMX): Fund Analysis Report
To read this article on Zacks.com click here.
Want the latest recommendations from Zacks Investment Research?
Today, you can download
7 Best Stocks for the Next 30 Days
Click to get this free report >>