Gold prices increased for the second straight day on Thursday, touching its highest level in six weeks. Simultaneously, the dollar fell to its lowest levels in the last 13 months after the Fed signaled that the process of reducing the size of its balance sheet will begin only in September. A record decline in the greenback propelled prices of the yellow metal which in turn benefited the broader precious metals sector.
Gold lost some of its luster in 2016 after a tumultuous 2015, but has managed to maintain its bull-run this year. With gold prices touching a six-week high, this looks like a good time to invest in mutual funds from the precious metals sector.
Gold Strikes Six-Week High
Following its two-day policy meeting, the Fed decided to keep the key rate unchanged and shifted its focus to unwinding its massive balance sheet which currently amounts to $4.5 trillion.The Fed’s statement indicates that the monetary tightening process will begin around September.
Additionally, the central bank’s statement dropped the word “somewhat” from its June statement instead choosing to directly state that inflation is still under 2%. This only represents a slight shift but is significant because it acknowledges a negative view on one of the Fed’s key objectives.
Fed’s gradual approach to monetary tightening and its shift in stance on inflation weighed on the U.S. dollar index, which decreased to 93.396, its lowest level since June 23, 2016. The record decline in dollar pushed gold prices northward by 1.1% to $1,262.11 an ounce, with its session high being $1,263.42 — its highest level since June 15.
Valuation Concerns a Boon for Gold
The U.S. Dollar Index increased 34% to touch the level of 103 in 2016. During the same period, gold prices fell by 34% to $1,250 an ounce. In contrast, the U.S. Dollar index has fallen as low as 92 this year, helping gold prices surpass the $1,200 an ounce mark.
The extent of gold’s gains this year can be gauged from its best ever level. Gold prices touched its best level of $1,900 an ounce, its best level in 2011 when the Dollar Index touched a low of 75. SPDR Gold Shares (GLD) has increased 5.6% and 9.3% in the last six months and year-to-date (YTD), respectively. According to Morningstar, the precious metal mutual fund category has posted YTD and three-months returns of 7.2% and 3.3%, respectively.
5 Precious Metals Mutual Funds to Buy
We have selected five precious metal mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). Moreover, these funds have encouraging year-to-date (YTD) returns. These also have minimum initial investment within $5000 and low expense ratios.
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.
Vanguard Precious Metals and Mining ( VGPMX Quick Quote VGPMX - Free Report) seeks growth of capital over the long term. The fund invests heavily in stocks of both domestic and foreign companies whose primary operations are regarding precious metals including gold. This non-diversified fund may also invest around one-fifth of its assets in gold, silver and other precious metals coins and bullion.
VGPMX has a YTD return of 11.7%, and an expense ratio of 0.43% compared with the category average of 1.36%. The fund has a Zacks Mutual Fund Rank #1.
Fidelity Advisor Gold A FGDAX invests the majority of its assets in securities of companies involved in gold-related activities and in gold bullion or coins. FGDAX may also invest around one-fourth of its assets in different precious metals including gold through its wholly owned subsidiary. The fund seeks appreciation of capital.
The fund has a YTD return of 8.1%, and an expense ratio of 1.16% compared with the category average of 1.36%. FGDAX has a Zacks Mutual Fund Rank #2.
Van Eck International Investors Gold A INIVX invests a large portion of its net assets in securities of companies engaged in gold-related activities including exploration, mining or processing of gold. It also invests around one-fourth of its assets in securities of companies from the gold-mining industry. INIVX seeks growth of capital and income for the long run.
INIVX has a YTD return of 12.7%, and an expense ratio of 1.35% compared with the category average of 1.36%. The fund has a Zacks Mutual Fund Rank #1.
Oppenheimer Gold & Special Minerals A OPGSX invests primarily in common stocks of companies engaged in processing, mining and dealing in gold, gold bullion and precious metals-based ETFs. OPGSX invests not more than one-fourth of its assets in the Oppenheimer Gold & Special Minerals Fund (Cayman) Ltd. The fund seeks growth of capital.
OPGSX has a YTD return of 14.3%, and an expense ratio of 1.17% compared with the category average of 1.36%. The fund has a Zacks Mutual Fund Rank #1.
Fidelity Select Gold FSAGX seeks appreciation of capital. FSAGX generally invests more than 80% of assets in securities of companies, which are engaged in activities related to gold. It invests mainly in those companies that are involved in exploration, mining, processing and deal with gold and other precious metals.
The fund has a YTD return of 8.2%, and an expense ratio of 0.84% compared with the category average of 1.36%. FSAGX has a Zacks Mutual Fund Rank #2.
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