Gold ETFs Bask in Gold’s Recent Rally

November 1, 2023 10:09:23

After experiencing a continuous decline in prices for nearly six months, gold prices have started to swing in the other direction. Kitco reported that the precious metal was trading at more than $1,970 per ounce earlier this week before closing at $1,922 an ounce, a notable feat after months of decline.

With gold prices rallying in recent weeks, gold-backed exchange-traded funds (ETF) have seen increasingly high returns in the past week as well.

The Sprott Gold Miners ETF had the highest return at 2.81% followed by the Sprott Junior Gold Miners ETF, which posted a 2.07% return. Data from LOGICLY show that the Sprott Gold Miners ETF (SGDM) ranked fourth in the top ten gold ETFs for the week while the Sprott Junior Gold Miners ETF was ninth.

With $257 million in assets and a 0.50 expense ratio, SGDM is a relatively new ETF that has been around for less than a decade. It tracks the Sprott Zacks Gold Miners Index and provides exposure to large-cap firms, or companies with more than $10 billion capitalization, in the gold industry in three economies: the United States, South Africa and Canada.

Canadian companies represent more than 85% of SGDM’s portfolio. The ETF had a return of close to 9% for the 30-day period beyond last week, a 24.03% return over the past 12 months and a 3.19% return in the last four years.

Launched on March 31, 2015, the Sprott Junior Gold Miners ETF (SGDJ) is even younger than SGDM. It is currently managing assets worth $100 million with a 0.50% expense ratio and tracks the Sprott Zacks Junior Gold Miners index to expose investors to small-cap firms in the gold mining ecosystem.

SGDJ tracks gold mining companies in five countries and has an overwhelming presence in Australia. Australian companies account for 50% of SGDJ’s portfolio followed by Canada at 31.16%, the United States at 9.30%, the United Kingdom at 9.01% and Indonesia at 0.53%.

The gold ETF saw its performance surge in October, posting a 7.62% return for the month and outperforming SGDM slightly for the past year.

However, SGDM surpassed Sprott Junior Gold Miners ETF in all the other time frames.

Additionally, both ETFs have experienced negative outflows over the past year but a continued rally in gold prices could reverse the trend. Experts predict that such a continued rally would contribute to sustainable growth among gold ETFs and could potentially reawaken investor interest in gold mining equities.

The rally witnessed in the gold market has undoubtedly had a positive impact on the stocks of major gold mining firms like Newmont Corporation (NYSE: NEM) (TSX: NGT) since share prices usually go up when the commodity enjoys favorable market conditions.

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