Gold prices touched its highest settlement in more than a year. This upsurge was prompted by the U.S. dollar registering its biggest weekly decline since February. The greenback weakened after Federal Reserve Chairman Jerome Powell signaled a “gradual” rate hike pace. Rising gold prices bode well for the overall precious metals market.
Gold lost some of its luster in 2016 after a tumultuous 2015, but managed to maintain its bull run in 2017. Moreover, the yellow metal has managed to register a steady increase so far this year. With gold prices shining, investors could eye mutual funds that have significant exposure to the precious metals sector.
Gold Best in More Than 3 Weeks
In the annual Fed symposium in Jackson Hole, Wyo, Powell said that the “gradual process of normalization” of key interest rate is appropriate as there is no “elevated risk of overheating.” Powell added that the Fed is ready for “whatever it takes” in case inflation goes out of control “or should crisis threaten again.”
Powell also said that although inflation recently came near 2% there is “no clear sign of an acceleration” higher than the desired level. Powell’s statement has two hawkish points, overheating may negatively weigh more on financial markets than inflation and policymakers should closely watch the measures taken for labor market tightness.
Also, Powell’s comments clearly indicated two more rate hikes this year, following which U.S. dollar declined. This was the primary trigger for the rise in prices of precious metals, including gold. The U.S. dollar index declined 0.5% to 95.161 on Aug 24. The index registered a weekly fall of 1%, its worst since February.
Gold prices increased 1.6% to settle at $1,213.30 per ounce on Aug 24, its best level in last three weeks and biggest one-day rise since March. Prices of the yellow metal were even up 0.1% at $1,206.57 an ounce early Aug 27.
Valuation Concerns Are a Boon for Gold
The U.S. Dollar Index soared 34% to touch 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 less than 90 this year, helping gold prices surpass the $1,350 an ounce mark.
The extent of gold’s gain this year can be gauged from its best-ever level. Gold prices touched the all-time high of $1,900 an ounce in 2011, when the Dollar Index had hit a low of $75. With gold prices moving near the key level of more than $1,300 an ounce, the precious metals sector has made a killing this year. Additionally, the precious metal mutual fund category has posted three-year returns of 10.2%, as per Morningstar
5 Precious Metals Mutual Funds to Buy
A weak dollar led gold prices upward, which makes precious metals funds strong investment choices. Here, we have selected five precious metal mutual funds that boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy). The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why should one be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
These funds also have encouraging year-year returns and minimum initial investment within $5000. Also, each of these funds has a low expense ratio.
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.
American Century Global Gold Investor (BGEIX - Free Report) invests in securities other than stocks, like debentures, bonds, gold, gold futures, etc. The fund focuses on those precious metals companies that are involved in mining, fabricating, exploring, processing and distribution of gold. BGEIX seeks returns through capital growth and high dividends.
BGEIX has three-year annualized returns of 16.4%. The fund has an expense ratio of 0.67% compared with the category average of 1.28%. BGEIX has a Zacks Mutual Fund Rank #1.
Wells Fargo Precious Metals A (EKWAX - Free Report) 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 three-year annualized returns of 12.3%. The fund has an expense ratio of 1.04% compared with the category average of 1.28%. The fund has a Zacks Mutual Fund Rank #2.
USAA Precious Metals and Minerals (USAGX - Free Report) 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 three-year annualized returns of 13.6%. The fund has an expense ratio of 1.23% compared with the category average of 1.28%. USAGX has a Zacks Mutual Fund Rank #1.
VanEck International Investors Gold Y (INIYX - Free Report) seeks growth of capital and income for the long run. INIYX invests a large chunk of its assets in companies involved in gold-based activities. This non-diversified fund may also invest at least one-fourth of its assets in the gold-mining industry.
INIYX has three-year annualized returns of 15.8%. The fund has an expense ratio of 1.10% compared with the category average of 1.28%. The fund has a Zacks Mutual Fund Rank #2.
Oppenheimer Gold & Special Minerals A (OPGSX - Free Report) 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.
OPGSX has three-year annualized returns of 17.1%. The fund has an expense ratio of 1.17% compared with the category average of 1.28%. OPGSX has a Zacks Mutual Fund Rank #1.
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