|Share on Facebook Facebook||Share on StumbleUpon StumbleUpon|
|Share on LinkedIn LinkedIn||Submit on Reddit reddit|
|Tweet Twitter||Pin it Pinterest|
|Share on Google+ Google+||Share on Digg Digg|
|Post to Tumblr Tumblr||Share on Delicious Delicious|
Welcome to VanEck
VanEck is a global investment manager with offices around the world. To help you find content that is suitable for your investment needs, please select your country and investor type.
Gold's price action in March was very constructive, even though it only advanced $6.62 (0.5%). Since the Fed began raising rates in December 2015, the gold market has shown weakness in the weeks ahead of each rate decision. This pattern was repeated once again, as the low for the month was $1,306 per ounce on March 21, the day the Fed announced its sixth 0.25% rate increase since it began raising rates. The Fed-induced lows in 2017 were in the $1,200 to $1,240 per ounce range, whereas the March 2018 low ($1,306) was much higher, extending the positive trend of higher lows to over two years. Gold was propelled to its high for the month of $1,356 per ounce on March 27 following the Trump Administration's announcement of tariffs targeting Chinese goods. China's immediate response was modest in comparison and gold finished the month at $1,325 per ounce.
Physical demand in India has been weak for a couple of years now due to import restrictions, taxation, and currency changes. We have been expecting demand to return to normal. However, in February, Bloomberg reported weak Indian imports which suggests the gold market in India continues to struggle. While we wait for favorable developments from India, the positive trend in prices has been driven by investment demand for gold bullion exchange traded products (ETPs). Global bullion ETPs have seen steady inflows since early 2017 and holdings have now reached levels last seen in 2013.
Gold equities outperformed gold bullion in March, as the NYSE Arca Gold Miners Index (GDMNTR)1 gained 2.9%, while the MVIS Global Junior Gold Miners Index (MVGDXJTR)2 advanced 2.2%. Perhaps gold stocks have begun to claw back the performance they have lost relative to gold this year. In the first quarter, gold equities underperformed gold by 7.2%, while junior miners underperformed by 7.8%. We normally expect gold equities to advance with gold, which has gained 1.7% so far this year. There are several reasons for the underperformance:
It appears that the confidence and complacency that has dominated the U.S. stock market for several years is now beginning to dissipate. Investor psychology is changing, the market is no longer bulletproof, and many of the high flying stocks are coming down to earth. Social media is facing a reckoning, as Facebook has become embroiled in a widening scandal over user data. Unfortunate mishaps for Tesla and Uber suggest autonomous driving may be much more difficult to achieve than expected. Regulators and tax authorities are targeting cryptocurrencies, while hackers target their exchanges.
The U.S. Commerce Department reported retail sales fell in February for the third month in a row, while the University of Michigan Consumer Sentiment Index4 jumped to a 14-year high and the Conference Board Consumer Confidence Index5 hovers near 17-year highs. This suggests that while times are good for most people, they have little desire to spend more in an economic expansion that is one of the longest on record. Households may save their gains from the Trump tax cuts, rather than spend in the economy, as the Commerce Department reports the savings rate ticked higher in February.
We believe these are signs that the post-crisis economic and stock market cycle is approaching its end. There are also many signs indicating core inflation could move beyond the Fed's 2% target. The S&P CoreLogic Case-Shiller Index6 is 6.3% higher than its 2006 peak. A shortage has led lumber to record highs. Freight costs are near 20-year highs. General Mills CEO Jeff Harmening was quoted in The Wall Street Journal, "we are seeing an unprecedented rise in logistics costs". In the 12 state Midwestern region, job openings outnumber out-of-work job seekers. Idaho workers led the nation with a 5.3% increase in earnings in 2017 thanks to labor shortages. The Fed's February Beige Book saw employers raise wages and expand benefit packages in response to tight labor market conditions in most districts. Layered on all this are new tariffs that could raise the costs of a wide range of goods.
With core inflation at 1.8%, it is likely that inflation achieves a "two-handle" (2%) soon, and rather than risk falling behind the curve, the Fed might tighten more aggressively. This would also be classic late-cycle behavior. The track record of the 13 hiking cycles since 1950 compiled by Gluskin Sheff7 leaves little room for optimism:
Fed hiking cycles, 10 landed in recession
Source: Haver Analytics, Gluskin Sheff.
In addition, many other countries are enjoying growing economies. A February report by HSBC economist Stephen King identified all periods since 1990 in which the world economy has delivered synchronized growth. Mr. King finds that each was followed by some kind of economic or financial shock, attributed to excessive optimism and unanticipated shifts in monetary policy.
If we are right in our late-cycle assessment, gold and gold stocks stand to benefit if the current market, characterized by confidence and complacency, transitions to one filled with risks and volatility. We believe that once generalist investors take the time to assess gold stocks, they will like what they see — companies with strong balance sheets, cost containment, and good cash flow run by managements incentivized by profitability and shareholder returns. Under the right conditions, it probably won't take long for the global gold mining sector with a market capitalization of just $250 billion to fill the valuation gap and regain its historic beta to gold.
1NYSE Arca Gold Miners Index (GDMNTR) is a modified market capitalization-weighted index comprised of publicly traded companies involved primarily in the mining for gold.
2MVIS® Global Junior Gold Miners Index (MVGDXJTR) is a rules-based, modified market capitalization-weighted, float-adjusted index comprised of a global universe of publicly traded small- and medium-capitalization companies that generate at least 50% of their revenues from gold and/or silver mining, hold real property that has the potential to produce at least 50% of the company's revenue from gold or silver mining when developed, or primarily invest in gold or silver.
3Safe haven is an investment that is expected to retain its value or even increase its value in times of market turbulence.
4A survey of consumer confidence conducted by the University of Michigan. The Michigan Consumer Sentiment Index (MCSI) uses telephone surveys to gather information on consumer expectations regarding the overall economy.
5The Conference Board Consumer Confidence Index® is an indicator designed to measure consumer confidence, which is defined as the degree of optimism on the state of the economy that consumers are expressing through their activities of savings and spending.
6The S&P CoreLogic Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate both nationally as well as in 20 metropolitan regions.
7Gluskin Sheff + Associates Inc., a Canadian independent wealth management firm, manages investment portfolios for high net worth investors, including entrepreneurs, professionals, family trusts, private charitable foundations, and estates.
Nothing in this content should be considered a solicitation to buy or an offer to sell shares of any investment in any jurisdiction where the offer or solicitation would be unlawful under the securities laws of such jurisdiction, nor is it intended as investment, tax, financial, or legal advice. Investors should seek such professional advice for their particular situation and jurisdiction.
Any indices listed are unmanaged indices and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in the Fund. An index's performance is not illustrative of the Fund's performance. Indices are not securities in which investments can be made.
Please note that the information herein represents the opinion of the author, but not necessarily those of VanEck, and this opinion may change at any time and from time to time. Non-VanEck proprietary information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Historical performance is not indicative of future results. Current data may differ from data quoted. Any graphs shown herein are for illustrative purposes only. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of VanEck.
About VanEck International Investors Gold Fund: You can lose money by investing in the Fund. Any investment in the Fund should be part of an overall investment program, not a complete program. The Fund is subject to the risks associated with concentrating its assets in the gold industry, which can be significantly affected by international economic, monetary, and political developments. The Fund's overall portfolio may decline in value due to developments specific to the gold industry. The Fund's investments in foreign securities involve risks related to adverse political and economic developments unique to a country or a region, currency fluctuations or controls, and the possibility of arbitrary action by foreign governments, including the takeover of property without adequate compensation or imposition of prohibitive taxation. The Fund is subject to risks associated with investments in debt securities, derivatives, commodity-linked instruments, illiquid securities, asset-backed securities, and small- or mid-cap companies. The Fund is also subject to inflation risk, short-sales risk, market risk, non-diversification risk, leverage risk, credit risk, and counterparty risk.
About VanEck Vectors® Gold Miners ETF (GDX®) and VanEck Vectors® Junior Gold Miners ETF (GDXJ®): An investment in the Funds may be subject to risks which include, among others, competitive pressures, dependency on the price of gold and silver bullion which may fluctuate substantially over short periods of time which may impact smaller companies more so than larger companies, periods of outperformance and underperformance of traditional investments such as bonds and stocks, natural disasters, and elevated risks associated with early stage mining companies such as major expenditures, properties that may not ultimately produce gold or silver and dependency on securing financing and potentially operating at a loss, all of which may adversely affect the Funds. Foreign investments are subject to risks, which include changes in economic and political conditions, foreign currency fluctuations, changes in foreign regulations, and changes in currency exchange rates which may negatively impact the Fund's return. Small- and micro-capitalization companies may be subject to elevated risks. The Fund's assets may be concentrated in a particular sector and may be subject to more risk than investments in a diverse group of sectors.
Diversification does not assure a profit or protect against loss.
Please call 800.826.2333 or visit vaneck.com for performance information current to the most recent month end and for a free prospectus and summary prospectus. An investor should consider the Fund's investment objective, risks, charges and expenses carefully before investing. The prospectus and summary prospectus contain this as well as other information. Please read them carefully before investing.
This website is published in the United States for residents of specified countries. Investors are subject to securities and tax regulations within their applicable jurisdictions that are not addressed on this website. Nothing on this website should be considered a solicitation to buy or an offer to sell shares of any investment in any jurisdiction where the offer or solicitation would be unlawful under the securities laws of such jurisdiction, nor is it intended as investment, tax, financial, or legal advice. Investors should seek such professional advice for their particular situation and jurisdiction.
Investing involves risk, including possible loss of principal. An investor should carefully consider investment objectives, risks, charges and expenses carefully before investing. This and other information can be found in the appropriate regulatory documents made available for a specified country as designated in this website.