Gold prices touched their highest settlement in the last six weeks on Nov 27. With the U.S. dollar falling to a two-month low, gold prices received a strong boost. A weaker greenback also had a positive impact on silver prices. Rising gold and silver prices bode well for the overall precious metals market.
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 shining, this looks like a good time to invest in mutual funds that have significant exposure to the precious metals sector.
Gold Touches 6-Week High
Gold prices increased 0.9% to settle at an intraday high of $1,306.90 an ounce on Monday, its best since Oct 16. This in turn has led the precious metal to post a gain of 2.7% so far in November, marking its best monthly increase since February. Additionally, silver prices advanced by $0.157 to $17.25 an ounce during the intraday.
The decline in U.S. dollar was the primary trigger for the rise in gold prices. During the intraday, the U.S. dollar index declined by 0.3% to $92.50 on Nov 27. The greenback index also posted a fall of 1.6% over the last one month. Weak durable orders and PMI data had a negative impact on the greenback.
Additionally, in the minutes of the Oct 31 to Nov 1 FOMC policy meeting, Fed officials hinted at lower rate hike prospects next year despite confirming a December rate hike this year. Some policymakers showed concerns over “persistent” slowdown in inflation and hinted that the central bank may scale back to one or at two rate increases next year, which is less than the previously expected three rate hikes. A moderate pace of future tightening and low inflation have also weighed on dollar, which in turn has given a boost to gold prices.
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 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 $1,900 an ounce, which is its best level that it touched back in 2011, when the Dollar Index hit a low of $75. With gold prices moving above the key level of $1,300 an ounce, the precious metals’ sector has performed significantly well this year.
Moreover, SPDR Gold Shares ETF (GLD) has increased by 1.3% and 11.4% over the last six months and year to date (YTD), respectively. Additionally, according to Morningstar, the precious metal mutual fund category has posted YTD and one-year returns of 6.8% and 4%, 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 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 concern 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 YTD returnsof 9.1%, and an expense ratio of 0.43% compared with the category average of 1.32%. The fund has a Zacks Mutual Fund Rank #1.
American Century Global Gold Investor BGEIX seeks capital growth and dividends. BGEIX invests in securities other than stocks, like debentures, bonds, gold, gold futures, etc. The fund focuses on investing in those precious metals companies that are involved in mining, fabricating, exploring, processing and distribution of gold.
BGEIX has YTD returns of 8.6% and an expense ratio of 0.67% compared with the category average of 1.24%. BGEIX has a Zacks Mutual Fund Rank #1.
Fidelity Select Gold FSAGX seeks appreciation of capital. FSAGX normally invests a large part of assets in securities of companies that are engaged in various activities like exploration, mining and processing of gold. The fund may also invest nearly one-fourth of its assets in various precious metals, including gold, through a wholly owned subsidiary.
FSAGX has YTD returns of 5.6% and an expense ratio of 0.84% compared with the category average of 1.24%. The fund has a Zacks Mutual Fund Rank #1.
USAA Precious Metals and Minerals USAGX seeks growth of capital for the long run and safeguards the capital’s purchasing power against inflation. USAGX invests a major portion of its assets in equity securities of U.S. and non-U.S. companies, which are involved in the mining, exploration and processing of gold and other precious metals like silver and platinum.
USAGX has YTD returns of 5.5% and an expense ratio of 1.22% compared with the category average of 1.24%. The fund has a Zacks Mutual Fund Rank #2.
Wells Fargo Precious Metals A EKWAX seeks capital growth for the long run by investing a bulk of its assets in stocks of companies involved in the precious metals business. EKWAX may also invest in equity securities of foreign companies like ADRs. The fund invests not more than 40% of its assets in equity securities of companies based in emerging markets.
EKWAX has YTD returns of 6.7% and an expense ratio of 1.09% compared with the category average of 1.24%. The fund has a Zacks Mutual Fund Rank #2.
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