Insights

Sprott Gold Report: Gold Glittering Alone No More

Authored by Shree Kargutkar, Portfolio Manager, Sprott Asset Management LP

Gold, in U.S. dollar terms, has gained 10.92% year-to-date in 2017 and has risen 20.41% since January 1, 2016 (as of 11/15/2017)1 — a fact largely ignored by a majority of market participants. Despite this strong performance, investment allocations into gold bullion and gold equities remain muted, and we have found this rather perplexing.

Why are We Perplexed?

Gold has traditionally been regarded as portfolio insurance for wealth preservation, something akin to buying home insurance for your house. It is negatively correlated to most equities and has served to reduce volatility when added to a traditional portfolio of equities and bonds. With the S&P 500, Dow Jones and Nasdaq Indices trading at all-time highs, and valuations at levels not seen in almost two decades, some investors are rightfully worried about the potential downside to their portfolios. Indeed, this is exactly the environment that prompts serious investors to begin giving gold a hard look as portfolio insurance. While the current appeal of gold seems like a no-brainer, too many investors remain uninvested or terribly underinvested in the precious metal.

Bridgewater Boosts Gold Holdings

Recently, we’ve seen some encouraging signs of renewed interest in the yellow metal. We are pleasantly surprised that Bridgewater Associates, the world’s largest hedge fund, has increased its SPDR Gold Trust ETF (GLD) holdings by a staggering 575% as of September 30, 2017, when compared to their previous disclosure three months ago as of June 30, 2017. Bridgewater purchased 3.32 million shares of GLD to bring its gold holdings to 3.89 million, representing 3.18% of its total portfolio (Bridgewater is now the 8th largest holder of GLD).

Bridgewater founder Ray Dalio has been on a recent media blitz advocating that investors have 5-10% of assets in gold as a hedge. We explore some of the specific risks that Dalio sees in our most recent infographic: How Billionaire Investors Hedge Against Geopolitical Black Swans.

We think that it is just a matter of time before investors begin to find it hard to ignore gold’s stealth bull market and react by increasing their allocations into this space accordingly.

Bridgewater Associates GLD Holdings

Bridgewater 

Source: Bridgewater Associates.

1 Source: Bloomberg. The Gold spot price is generally used as the basis to determine the exact price to charge for a specific coin or bar.

The information contained herein does not constitute an offer or solicitation by anyone in any jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation.

Forward-Looking Statement

This report contains forward-looking statements which reflect the current expectations of management regarding future growth, results of operations, performance and business prospects and opportunities. Wherever possible, words such as “may”, “would”, “could”, “will”, “anticipate”, “believe”, “plan”, “expect”, “intend”, “estimate”, and similar expressions have been used to identify these forward-looking statements. These statements reflect management’s current beliefs with respect to future events and are based on information currently available to management. Forward-looking statements involve significant known and unknown risks, uncertainties and assumptions. Many factors could cause actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements. Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results, performance or achievements could vary materially from those expressed or implied by the forward-looking statements contained in this document. These factors should be considered carefully and undue reliance should not be placed on these forward-looking statements. Although the forward-looking statements contained in this document are based upon what management currently believes to be reasonable assumptions, there is no assurance that actual results, performance or achievements will be consistent with these forward-looking statements. These forward-looking statements are made as of the date of this presentation and Sprott does not assume any obligation to update or revise.

Views expressed regarding a particular company, security, industry or market sector should not be considered an indication of trading intent of any fund or account managed by Sprott. Any reference to a particular company is for illustrative purposes only and should not to be considered as investment advice or a recommendation to buy or sell nor should it be considered as an indication of how the portfolio of any fund or account managed by Sprott will be invested.

Past performance does not guarantee future results. The views and opinions expressed herein are those of the author’s as of the date of this commentary, and are subject to change without notice. This information is for information purposes only and is not intended to be an offer or solicitation for the sale of any financial product or service or a recommendation or determination by Sprott Global Resource Investments Ltd. that any investment strategy is suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy based on the objectives of the investor, financial situation, investment horizon, and their particular needs. This information is not intended to provide financial, tax, legal, accounting or other professional advice since such advice always requires consideration of individual circumstances. The products discussed herein are not insured by the FDIC or any other governmental agency, are subject to risks, including a possible loss of the principal amount invested.

Generally, natural resources investments are more volatile on a daily basis and have higher headline risk than other sectors as they tend to be more sensitive to economic data, political and regulatory events as well as underlying commodity prices. Natural resource investments are influenced by the price of underlying commodities like oil, gas, metals, coal, etc.; several of which trade on various exchanges and have price fluctuations based on short-term dynamics partly driven by demand/supply and also by investment flows. Natural resource investments tend to react more sensitively to global events and economic data than other sectors, whether it is a natural disaster like an earthquake, political upheaval in the Middle East or release of employment data in the U.S. Low priced securities can be very risky and may result in the loss of part or all of your investment. Because of significant volatility, large dealer spreads and very limited market liquidity, typically you will not be able to sell a low priced security immediately back to the dealer at the same price it sold the stock to you. In some cases, the stock may fall quickly in value. Investing in foreign markets may entail greater risks than those normally associated with domestic markets, such as political, currency, economic and market risks. You should carefully consider whether trading in low priced and international securities is suitable for you in light of your circumstances and financial resources. Past performance is no guarantee of future returns. Sprott Global, entities that it controls, family,

 

Shree Kargutkar
Shree Kargutkar
Portfolio Manager
Sprott Asset Management LP

Sprott Asset Management LP is the sub-advisor for Sprott Gold and Precious Minerals Fund and Sprott Silver Equities Class.
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