After years of losses, funds focused on gold and gold miners are up sharply this year as investors snapped gold for protection from a turbulent stock market.
Gold-focused funds were among the best-performing mutual funds in the first quarter. The precious metal is up nearly 17 percent this year and 2.4 percent over the past 12 months.
Van Eck International portfolio manager Joe Foster
manages the International Investors Gold Fund (INIVX), which is comprised of gold-mining companies and is up 37.3 percent this year, as of Wednesday, and up 2.1 percent from a year ago.
Foster makes the case that gold mining companies make a better bet for investors looking to ride the rebound in gold, especially if gold prices remain above $1,200 an ounce.
Q: Should investors anticipate more gains for gold after the big first quarter?
A: I can say with pretty high conviction that the bear market that has been going on for five years is over. All of the changes in dynamic and market psychology we’re seeing this year are a big shift that’s supportive of gold.
Right now gold has pulled back a bit. It’s been a strong year, now we’re getting the inevitable correction and that’s going to tell us how robust this market is.
If prices can hold up above $1,200 in this correction, that would be a very bullish sign to me.
If gold continues to rise higher, I would expect that good performance to continue as more generalists and hedge funds and others come into the sector.
Q: Why invest in a gold mining fund versus gold itself?
A: Gold companies are really leverage proxies for gold. They tend to outperform gold on the upside and underperform on the downside.
We’ve seen a major turnaround in the market this year, and if you believe it’s going to continue, you’re much better off in gold stocks with that leverage than you are in physical gold.
The mining companies, like all companies, aim to create value. So, if they’re successful, then you don’t just get exposure to gold, you get exposure to the additional value that the company is creating by finding and developing mines.
Q: Gold prices tend to rise when investors look for alternatives to stocks during a volatile market. Does that mean a less volatile market is bad news?
A: Every period is different. The general stock market has been weak this year and gold has been up, but the correlation between the general market and gold is about zero. Sometimes they correlate and sometimes they don’t.
Q: Any red flags for gold miners ahead?
A: A strong dollar usually spells trouble for gold. This year we’re seeing the dollar topping out and going sideways, so that’s one of the reasons gold is doing well this year.
So, if we get some strong economic growth here in the U.S., or the Fed decides to increase rates more aggressively than what the market currently believes, that would probably lend strength to the dollar, and that would be hard on gold.
