The iShares MSCI Global Gold Miners ETF has seen its share price rise since the start of the year, with the value of gold soaring on the back of high inflation and conflict in Ukraine.
With investors flocking to the safety and security of gold in times of crisis, the iShares MSCI Global Gold Miners ETF [RING] is in the spotlight.
RING seeks to track the investment results of an index composed of global equities of companies mainly engaged and deriving most of their revenues from gold mining.
The share price of Russian gold miner Polymetal, which has a 1.68% weighting in the ETF, has plummeted 64% over the past fortnight from 1,169p in mid-February to 413p in mid-trading on 28 February.
The drop follows Russia’s invasion of Ukraine and the resulting economic and financial sanctions imposed by the West as punishment.
“There is a growing investor backlash against anything Russia-related,” said Russ Mould, investment director at AJ Bell. “Many investors are showing solidarity with Ukraine and no longer believe it is morally right to have anything do with Russia in their portfolio.”
However, RING has so far been unaffected by the crisis. Indeed, its share price has risen 1% since the invasion began on 24 February. That is largely down to spot gold hitting a near 15-month high of around $1,925 on that date. It now sits at around $1,914 according to BullionVault.
Flight to gold
With investors looking to gold instead of equities or bonds, RING has benefitted in times that have been difficult for other stocks.
In addition, investors have turned to the shiny metal because of fears over higher inflation. The ETF has also benefitted from gold mines returning closer to full production following the disruption of Covid-19 lockdowns.
“Our clients are all worried about the fallout of an invasion in the east coupled with the worst inflationary conditions we have seen for 40 years,” said Josh Saul, chief executive of gold investment firm The Pure Gold Company. “Many are anxious about leaving their savings in banks or keeping investments in the stock market as the turbulent conditions could get worse in the days and weeks to come.”
Mixed performance for key holdings
The RING share price has grown gradually over the past 12 months, rising from $25.25 in early March 2021 to $28.25 on 28 February. However, over that period it surged to a high of $33 in mid-May as Covid disruption continued and markets remained volatile, and a low of $24 in late September as investors’ fears eased and they turned once again to equities.
The iShares MSCI Global Gold Miners ETF, which was launched in 2012, has net assets of $531.9m and a year-to-date daily total return of -6.39%.
It has 40 holdings, of which Newmont [NEM] has the biggest weighting at 22.58%, followed by Barrick Gold [GOLD] (16.43%), Agnico Eagle Mines [AEM] (8.29%) and Wheaton Precious Metals [WPM] (7.81%).
Shares in Newmont have risen 13% over the past 12 months. It received a boost from its recent fourth-quarter figures, when adjusted earnings came in at $0.78 per share compared with estimates of $0.76 per share. Quarterly revenues totalled $3.39bn, up 0.3% year-over year and beating estimates of $3.33bn.
It has gold mineral reserves of 92.8 million ounces, 15 billion pounds of copper reserves and 600 million ounces of silver.
Agnico Eagle Mines shares have dropped 5.4% over the past 12 months. It recently posted Q4 net income of $101.1m, down from $205.2m in the year-ago quarter. However, revenues rose 2.2% year-over-year to $949.1m.
“[Gold will hit] record highs this year in volatile trading as inflation outpaces interest rates” – iShares Gold Miners ETF excecutive chairman Sean Boyd
Gold prices shift higher
The ETF’s executive chairman Sean Boyd recently told Bloomberg that gold will hit “record highs this year in volatile trading as inflation outpaces interest rates”. As a result, Agnico and other miners such as Barrick Gold will generate lots of cash and up dividend payments.
“Equities are positioned to perform,” Boyd said.
Goldman Sachs analysts recently upped their six-month gold forecast to $2,500 per troy ounce. It said this was because gold is the best defensive asset against high inflation, which erodes the value of cash and even interest rates.
According to the World Gold Council, other drivers for the gold price will include strong demand for jewellery, small bars and coins. Unfortunately, war will continue to be another factor moving prices higher.
“This price rise has had a salutary effect on gold mining companies who can expect to see their profit margins expand in line with the increased price of the metal,” wrote Rony Abboud in Trackinsight last week.
Source: CMCMarkets.com
