The Fund -Invest Wisely

Ranking: The Top 10 Gold Mining Stock Funds

Note: This text is a translation from the original language, German.

When times are particularly turbulent and there is uncertainty about how the global economy will develop, many investors turn to gold. Gold mining stocks act as a turbocharger in this situation: they fluctuate more than the price of gold itself but also offer above-average return opportunities. We will show you the highest-yielding gold mining stock funds of the past five years.

Venezuela serves as an example of what happens when states continuously print money. Recently, the government of the South American Caribbean nation removed six zeros from its hyperinflationary currency. It's not surprising that a large portion of the population no longer uses the local Bolivar as a means of payment. Instead, people turn to alternatives like the US Dollar, Bitcoin, or gold.

Especially in the gold mining areas in the southeast of the country, hotel stays or haircuts are paid for with the precious metal. According to a Bloomberg report, a haircut costs 1/8 gram of gold, equivalent to about 6.50 euros.

Here in our country, the fan base for gold is also significant, as gold is a sought-after asset in economically uncertain times. With the onset of the COVID-19 pandemic, the price of gold rose by nearly 25%, reaching its historical high of $2,067 per ounce (approximately 1,740 euros) on August 6, 2020.

2022: The Comeback of Gold Bulls?

Joe Foster © VanEck

However, 2021 was rather disappointing for gold investors, despite emerging inflation. While numerous fossil fuels such as oil, coal, and gas experienced significant price increases, precious metals faced challenges. The gold price moved sideways with fluctuations over the year, and mining companies often felt the pressure. Many stocks are being traded at a discount and are historically considered bargains.

This could be a contrarian entry point. Joe Foster, a gold expert at VanEck, points to history. "For those who believe that gold has missed the inflation train, there are several reasons to reconsider this view. Over the last 50 years, there have been only two other inflationary periods. The first in the 1970s and the second from 2003 to 2008. In each of these inflationary periods, gold performed worse than commodities in the first half but better in the second half. It seems that the markets (and gold) are only taken seriously when inflation proves to be insurmountable," he writes in his newsletter.

So, the gold bulls might just be catching their breath on the way up. Foster raised his gold price target to $3,400 per ounce a few months ago. The factors supporting higher gold prices continue to be valid, including negative real interest rates, mounting debt, and high investor demand. When inflation rates are above 5%, safe government bonds yield negative real returns even when interest rates rise. So, gold continues to play an essential role as a hedge against inflation.

Tobias Tretter © Commodity Capital AG

Tobias Tretter, who manages the Commodity Capital Global Mining Fund (ISIN: LU0459291166), shares this view. He considers gold's weak performance as one of the reasons why 2022 could be the year for gold and silver. Fundamentals support significantly higher prices, but investors currently seem to overlook these positive facts. In my experience, this only works for a limited time, and once the expectation of high inflation prevails this year, gold is likely to take off and positively surprise.

Investors have various options to invest in gold. The most charming one is undoubtedly the physical purchase of coins, bars, or jewelry, providing gold enthusiasts with tangible ownership that can be admired from time to time. Another option is gold certificates (ETCs), which are debt securities backed by physical holdings. Xetra-Gold is particularly popular in Germany.

Shiny Returns with Leverage

The riskiest option is to acquire gold that is still in the ground. On the other hand, investors can achieve shining returns by purchasing gold mining stocks. The potential for profit and loss of individual mines is enormous. It's important to note that these stocks come with built-in leverage. When the price of the precious metal rises, the earnings of the companies grow above average, leading to higher stock prices.

However, poor management decisions or external factors can significantly deteriorate a company's profit situation and send stock prices plummeting—society, politics, or geological factors can have the same effect. "Our success lies in selecting the right companies with top-class management teams, of which there are very few left. For projects with top-class management teams in politically stable regions like Canada, the USA, or Australia, we see the best opportunities and certainly the best risk-reward profile," describes fund manager Tretter.

Unlike owning coins or bars, mining stocks may also yield dividends. Gold producers can afford this due to the gold price, which has risen to over $1,800 per ounce (31.1 grams), offering companies ample profit margins.

Professionally managed funds reduce risk through broad diversification. We've searched for the best gold mining stock funds of the past five years and found returns of up to 193%. You can find out which fund leads the way in this period in our slideshow.

Please note: This is not investment advice or a purchase recommendation. Investing in the capital market carries risks. Past performance is not indicative of future results. Fund data as of January 26, 2022.