Gold had touched a near four-week high lately, thanks to declining expectations of a rate hike and looming Brexit fears. Possibility of a rate hike declined this month due to discouraging jobs report, which also raised questions about the health of the economy. Meanwhile, volatility spiked as more British citizens opted for a Brexit.
These uncertainties boosted gold's appeal as a store of value. Gold already had a stunning rally surging around 20% this year. Hence, investing in mutual funds whose assets are invested in securities of gold looks to be a prudent move.
Rate Hike Expectations Diminish
Thanks to May's lower-than-expected nonfarm payroll number, Fed futures data indicates no chance of a rate hike on Wednesday, down from a 24% likelihood at the end of May. The U.S. economy had added just 38,000 jobs in May, the weakest level of hiring in almost six years, according to the Labor department. The pace of hiring also slowed down to an average 116,000 in the past three months.
The jobless rate, on the other hand, fell to 4.7% last month, its lowest level since Nov 2007. But, the drop was mostly due to a number of people dropping out of the labor force and was therefore counted as unemployed. Now this isn't a promising sign. Moreover, dismal jobs report pointed to weakness in the economy. This is bound to have a repercussion on consumer confidence. This might hamper spending levels that have been one of the bright spots driving the U.S. recovery.
Lower interest rates generally tend to boost precious metals such as gold, as it makes yield-bearing assets such as U.S. Treasuries less attractive. Lower rates also adversely affect the dollar, which in turn raises the appeal for such metals. Moreover, when a country's growth prospects are headed south, investors mostly get out of risky investments like stocks. Precious metals tend to retain their value and even increase their value during times of market downturn.
Investors are also increasingly edgy over the referendum, which is slated later this month, on whether U.K. should stay in the European Union. Anxiety over a possible exit of the U.K. from the European Union has heightened volatility in the markets.
The risk of a "Brexit" has intensified after fresh polls. Last weekend, an opinion poll by Opinium showed that 52% of the Brits prefer to leave the world's biggest single market, while 33% are in favor of not leaving. Another poll by the Independent showed that 55% of those surveyed believed Britain should leave the European Union, while 45% wanted to stay in.
British Prime Minister David Cameron on Sunday in an interview with the Observer cautioned that a potential Brexit will negatively impact British spending on healthcare. While saying so, he was citing a research by the Institute of Fiscal Studies and the National Institute for Economic and Social Policy. He alerted that Brexit will dry up around 40 billion pounds in U.K. public finances by 2020. U.K.'s campaign to leave the bloc will be decided in a vote on Jun 23.
Fears of Britain leaving the European Union next week are sending global stock markets lower. This turned to be a blessing in disguise for gold as more investors take money out of equities and park them in such safe haven assets.
Appeal for Gold Increases: Buy These 4 Mutual Funds
As odds of a rate hike this month ebb due to weak nonfarm payroll data and chances of a possible exit of Britain from the European Union increase, gold prices advance, hitting a four-week high recently. Banking on this uptick in gold prices, it will be judicious to invest in mutual funds that have considerable exposure to the metal.
We have selected four such gold mutual funds that have a whopping year-to-date and 1-year return, boast a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy), offer a minimum initial investment within $2,500 and carry a low expense ratio. Funds have been selected over stocks, since funds reduce transaction costs for investors. Funds also diversify their portfolio without the numerous commission charges that stocks need to bear.
American Century Global Gold A ACGGX invests the majority of its assets in companies that are engaged in mining, processing, fabricating, distributing, exploring for or otherwise dealing in gold. ACGGX's year-to-date and 1-year returns are 91.9% and 45.6%, respectively. Annual expense ratio of 0.92% is lower than the category average of 1.45%. ACGGX has a Zacks Mutual Fund Rank #1.
Fidelity Advisor Gold A FGDAX invests a major portion of its assets in securities of companies principally engaged in gold-related activities, and in gold bullion or coins. FGDAX's year-to-date and 1-year returns are 78.9% and 43.7%, respectively. Annual expense ratio of 1.2% is lower than the category average of 1.45%. FGDAX has a Zacks Mutual Fund Rank #1.
Deutsche Gold & Precious Metals A SGDAX invests a large portion of its assets in common stocks and other equities of U.S. and foreign companies engaged in activities related to gold or other precious metals. SGDAX's year-to-date and 1-year returns are 81% and 36%, respectively. Annual expense ratio of 1.25% is lower than the category average of 1.45%. SGDAX has a Zacks Mutual Fund Rank #1.
Franklin Gold and Precious Metals A FKRCX invests the majority of its assets in securities of gold and precious metals operation companies. FKRCX's year-to-date and 1-year returns are 84.3% and 39.5%, respectively. Annual expense ratio of 1.09% is lower than the category average of 1.45%. FKRCX has a Zacks Mutual Fund Rank #2.
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