After rallying for the most part of this year, precious metals mutual funds lost their shine a little bit over the past one-month period as gold and silver prices witnessed a halt during the time frame. However, Fed’s no rate hike decision helped commodities to witness an impressive rebound last week. While price of gold for September delivery registered the highest weekly gain of 2.4% since June 10 to $1,337.20 per ounce, price of silver contract outperformed the yellow metal to surge 5% last week to $19.810.
Moreover, favorable outlook for the near-term also indicates that these precious metals are poised to hold on to these gains in the days ahead. This may thus be an ideal time to invest in precious metals funds.
Fed’s No-Hike Fuels the Rise of Precious Metals
In its latest policy meeting, the Federal Market Open Committee (FOMC) decided to keep key
interest rate unchanged, which played an important role in boosting the price of these precious metals. Though it hinted that a rate hike may occur by the end of this year, policy makers anticipated lower than earlier expected hikes in 2017. Fed Chair Janet Yellen said: “We judged that the case for an increase had strengthened but decided for the time being to wait for continued progress toward our objectives.”
Notably, policy makers now envisage two rate hikes in 2017, down from the June median projection of three, as per Bloomberg. It also cut its long-term target for fed funds to 2.9% from 3%. Though currently there is a high chance of a hike in December, it is expected to have little impact on the prices of precious metals. Investors believe that the commodities have enough strength to digest the hike as it will not likely be more than 0.25%.
BOJ’s Yield Control & U.S. Presidential Election
Bank of Japan’s (BOJ) move to
control yields on 10-year sovereign bond also played an important role in boosting these safe-haven assets. In its policy meeting last week, BOJ decided to control the bond yield-curve. It will issue a zero interest-rate target for 10-year government bonds to counter deflationary threats and accordingly buy bonds. In a scenario, when most of the sovereign bonds are suffering lower yields, this move is expected to drive the attention of yield-hungry investors further toward these precious metals.
Separately, the U.S. Presidential election in November is expected to inject significant volatility into equity markets, which in turn is expected to boost the demand for precious metals. Though most of the participants are betting on Hillary Clinton’s win, recent polls indicated that there will be a tight fight between Clinton and Donald Trump. Thus, it is quite evident that volatility will increase significantly, which may go in favour of precious metals.
The upcoming festival season in China and India are expected to boost demand further in the near future. Also, the recent dip in prices steers clear of overvaluation concerns in gold, giving it a fresh way to run. It is also speculated that precious metals are likely to win ahead with rock-bottom interest rates prevailing in most parts of the world.
believe that the price of precious metals, especially gold, is likely to surge in the days ahead. For instance, Robert McEwen, the founder of McEwen Mining and Goldcorp anticipates gold price to trade between $1,700 and $1,900 an ounce by the end of this year, surging nearly 44%. Moreover, there are analysts who still foresee a $1,400-an-ounce level later this year. According to UBS, the bullion could rally to $1,500 an ounce in 2017. 4 Mutual Funds to Buy
Banking on these positive factors, we have highlighted four precious metals mutual funds that carry either a Zacks Mutual Fund Rank #1 (Strong Buy) or #2 (Buy). We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.
These funds also come with low expense ratios and with no sales load. Moreover, they have encouraging year-to-date, one-year and three-year annualized returns, and the minimum initial investment is within $5000.
American Century Global Gold Investor ( BGEIX - Free Report) invests a bulk of its assets in securities of companies which are involved in mining, distributing, processing and exploration of gold. Its annual expense ratio of 0.67% is significantly lower than the category average of 1.33%. This Mutual Fund Rank #1 product has year-to-date, one-year and three-year annualized returns of 97.9%, 105.1% and 4.8%, respectively. Fidelity Select Gold ( FSAGX - Free Report) seeks appreciation of capital. FSAGX normally invests more than 80% of its assets in securities of companies, which are engaged in activities related to gold. The annual expense ratio of 0.94% is significantly lower than the category average of 1.33%. This Mutual Fund Rank #1 product has year-to-date, one-year and three-year annualized returns of 89.2%, 94.3% and 6.2%, respectively. Deutsche Gold & Precious Metals S ( SCGDX - Free Report) invests the lion’s share of its assets in common stock and other equities of domestic and foreign companies from the precious metals sector. The annual expense ratio of 1.01% is significantly lower than the category average of 1.33%. This Mutual Fund Rank #1 product has year-to-date, one-year and three-year annualized returns of 92%, 97.6% and 1.2%, respectively. Franklin Gold and Precious Metals Advisor ( FGADX - Free Report) invests a major portion of its assets in companies from the gold and precious metals sector throughout the globe. The annual expense ratio of 0.84% is significantly lower than the category average of 1.33%. This Mutual Fund Rank #2 product has year-to-date, one-year and three-year annualized returns of 103.4%, 95% and 7.4%, respectively. Want key mutual fund info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week.
Get it free >>