Three junior gold mining investments to buy as precious metals increasingly shine in the market feature two funds and a stock.
The three junior gold mining investments to buy offer heightened risk and reward due to the volatile nature of commodities that traditionally serve as inflation hedges. When inflation climbs, precious metals such as gold and silver usually rise, as well as shine.
Metal prices were “quite favorable” in first-quarter 2023, with average prices per ounce of $1,892 for gold and $22.55 for silver, according to a recent research report of BofA Global Research. Gold futures soared to $2,032.60 on Tuesday, April 11, marking a 24.5% jump since falling to $1,630.90 about six months ago on Nov. 3. BofA Global Research proved prescient with its prediction several weeks ago that the price of gold would top $2,000 per ounce.
Three Junior Gold Mining Investments to Buy as the Commodity’s Price Climbs High
“Gold’s price moves based on several factors,” said Bob Carlson, who leads the Retirement Watch investment newsletter and recommends different portfolios of his favored stocks and funds. “Many think of gold as an inflation hedge and, in general, it is. But gold also is sensitive to other factors. When interest rates rise, that often hurts gold’s price because it doesn’t pay income. Gold also is correlated with the amount of liquidity in the economy. When the Fed reduces liquidity, as it did in 2022, that tends to put downward pressure on gold.”
Carlson, who also serves as chairman of the Board of Trustees of the Fairfax County (VA) Employees’ Retirement System, said gold’s price tends to rise when inflation climbs in the United States. The price of gold zooms yet more when longer-term inflationary expectations increase in the United States, he added.
Despite inflation rising through most of 2022 and staying up, expectations for inflation remained fairly low, Carlson said. Futures markets indicated that most investors expect inflation’s ascent to be temporary. They most likely anticipate inflation falling fast, so expectations of low long-term inflation hurt gold in 2022, he added.
Since gold is a “crisis hedge,” that outlook by investors recently has driven up the precious metal’s price, Carlson said. Banking woes in the United States and elsewhere, rising probability of a recession in 2023, verbal sparring between leaders in America and Russia, China and Iran, as well as other risks, have heightened uncertainty to give gold a boost, he added.
Retirement Watch leader Bob Carlson meets with Paul Dykewicz.
Three Junior Gold Mining Investments to Buy as Shields
“Investors should have some exposure to gold in their portfolios unless they believe the potential for crises is low,” Carlson said. “Stocks of gold mining companies tend to move in the same direction as gold but are more volatile. The stocks will rise more than gold in bull markets and decline more than gold in bear markets.”
Gold mining funds basically serve as leveraged plays on the precious metal, Carlson counseled. The companies have high fixed costs but low variable costs. When the price of gold rises above a company’s cost of production, most of the price hike goes to the miner’s bottom line, he added.
But many mining companies now make their revenues less volatile by entering into contracts that sell much of their future production at fixed prices. They’ll profit less from gold price increases but reduce the fallout from price decreases.
Shares of mining companies do not always move in line with gold. A company may have management or labor problems, carry too much debt, or have other characteristics that cause its share price to decline when gold’s price is rising.
Three Junior Gold Mining Investments to Buy Offer Risks and Rewards of Volatility
ETFs provide many ways to invest in stocks of gold mining companies. For the adventurous investor, there are ETFs that aim to earn two to three times the change in indexes of the companies, on both the upside and downside, through leverage. There also are funds that sell short the shares for those who are bearish on the sector.
Most investors should look at funds that either actively invest in gold miners or aim to track an index of the miners. Almost all the ETFs invest in miners of other precious metals mining or some diversified miners aside from pure gold mining companies.
Those who want to be aggressive can put some money in an ETF that focuses on smaller mining companies, known as junior miners. These, of course, have more risk, because younger companies are more vulnerable than the established miners, Carlson counseled. But the junior miners also provide greater potential for gains, especially if they are acquired by larger miners, he added.
ETFs that focus on junior miners include Sprott Junior Gold Miners (NYSE Arca: SGDJ) and VanEck Junior Gold Miners (NYSE: GDXJ), Carlson said.
Three Junior Gold Mining Investments to Buy: Sprott Junior Gold Miners
Sprott Junior Gold Miners Exchange Traded Fund seeks investment results that correspond, before fees and expenses, to the performance of the Solactive Junior Gold Miners Custom Factors Index (Ticker: SOLJGMFT). That index aims to track the results of small-capitalization gold companies whose stocks are listed on regulated exchanges.
The index uses a rules-based methodology that is designed to focus on junior gold stocks with market capitalization between $200 million and $2 billion. In addition, the Index emphasizes junior gold producers with the strongest revenue growth and junior exploration companies with stock price momentum.
Another feature of using the fund is that the index it tracks is reconstituted on a semi-annual basis each November and May. That reallocation incorporates the latest factor scores into the selection and weighting process.
Chart courtesy of www.stockcharts.com
The fund most recently featured 43 holdings and held $118 million in net assets. The top 10 holdings in the fund accounted for 54.6% of its total assets. The five top positions and their weightings in SGDJ are Torex Gold Resources Inc. (OTCMKTS: TORXF), 6.38%; Equinox Gold Corp. Ordinary Shares Class A (NYSE: EQX), 6.26%; OceanaGold Corp. (OTCM: OCANF), 6.01%; Perseus Mining Ltd. (XTSE: PRU), 5.95%; and Novagold Resources Inc. (NYSE: NG), 5.66%.
Three Junior Gold Mining Investments to Buy: VanEck Junior Gold Miners
VanEck Junior Gold Miners is an ETF chosen not only by Carlson but by Michelle Connell, who heads Dallas-based Portia Capital Management. For those seeking an aggressive ETF with heightened risk and rewards due to its focus on junior gold miners, GDXJ offers “long-term upside potential,” Connell told me.
“Many countries are looking at moving away from the U.S. dollar,” Connell said. “This de-dollarization could lead to lower demand for U.S. securities. Lower demand for U.S. securities means higher interest rates will be needed to attract investors.”
Michelle Connell leads Dallas-based Portia Capital Management.
Increased interest rates will “put a floor” under inflation, Connell counseled. She predicted that inflation will stay fairly high or exceed 2% going forward.
Chart courtesy of www.stockcharts.com
Geo-Political Risk Lifts Three Junior Gold Mining Investments to Buy
“Gold will be attractive not only because of continued inflation, but because of geo-political risk,” Connell continued. “GDXJ has lower risk than its peers due to its high level of current investors and it trades almost 7.5 million shares a day.”
Such liquidity is important if investors want quick access to their money without taking a “haircut” on the seller’s proceeds, Connell said. On a one-, three- and five-year basis, GDXJ has been less volatile than Sprott Jr. Gold Miners ETF, she added.
“Due to gold’s recent appreciation, I would not be rushing in to buy these funds,” Connell said.
Instead, investors could start with a small position and dollar-cost average into the position size that they think political uncertainty and inflation warrant. The top five holdings and their weightings in GDXJ are Pan American Silver Corp. (NASDAQ: PAAS), 7.05%; Kinross Gold Corp. (NYSE: KGC), 5.25%; Alamos Gold Inc. Class A (NYSE: AGI), 4.70%; Endeavor Mining PLC (XTSE: EDV), 3.88%; and B2Gold Corp. (NYSE: BTG), 3.72%.
Three Junior Gold Mining Investments to Buy: SSRM
SSR Mining Inc. (NASDAQ/TSX: SSRM), headquartered in Denver, Colorado, describes itself as a free-cash-flow-focused gold company with four producing operations located in the United States, Turkey, Canada and Argentina. Those mining operations, combined with a global pipeline of quality development and exploration assets, have helped the company during the last three years to produce an average of more than 700,000 gold-equivalent ounces annually.
SSRM has 10 analysts following it with an average price target of $21 a share, offering investors roughly 35% upside in the next 12-18 months, Connell counseled. For the past 10 years, the company has outperformed its peer group, she added.
“Another positive… is that the company does not overpay for acquisitions,” Connell continued.
The company, too small to be a senior gold miner and too big to fit neatly into the role as a junior gold miner, is characterized by BofA as a mid-tier gold producer.
SSRM seeks positive cash flow when pursuing other miners to purchase, Connell said. Since diversifying well beyond Argentina in 2014, the miner has consistently delivered production that beats expectations, she added.
Chart courtesy of www.stockcharts.com
However, SSRM faces some fallout due to the closure of its mine in Turkey, Connell said. The company has taken a hit due to the earthquake-related closure of its mine in Turkey, Connell continued.
Connell told me she found it interesting that 16 hedge funds own the stock. One fund sold the stock last year when it appeared fully valued. Since then, the same hedge fund bought shares again.
Key appeals of SSRM are its strong cash balance of $600 million, along with $4.1 billion in stockholders’ equity, Connell continued.
Three Junior Gold Mining Investments to Buy Omit SPDR Gold ETF
SPDR Gold ETF (GLD) is far from a junior gold mining investment, but it is a current recommendation of Mark Skousen, PhD, in his Forecasts & Strategies investment newsletter. GLD is up close to 25% since his recommendation of GLD in Forecasts & Strategies.
“Gold is a long-term hedge against inflation and geo-political instability,” Skousen wrote to his subscribers in the April 2023 edition of his investment newsletter.
Mark Skousen heads Forecasts & Strategies.
GLD, listed on the New York Stock Exchange in November of 2004, has traded on NYSE Arca since December 13, 2007. SPDR Gold is the world’s largest physically backed gold exchange-traded fund.
The fund’s sole assets are physical gold bullion and sometimes cash. Since GLD is not leveraged to the price of gold to the extent of miners, its gains in the last year were not as volatile as the exploration and production companies or the junior miners.
Three Junior Gold Mining Investments Aim to Tap into Rising Gold Prices
Jim Woods, who heads the Bullseye Stock Trader advisory service, recommended a gold stock last week, along with a related call option. The Bullseye Stock Trader advisory service, offering both recommendations of stocks and options, is nearing a 7.7% gain in the stock in less than two weeks.
Jim Woods heads Bullseye Stock Trader.
Leaked Pentagon Documents Show U.S. Government Leaders Expect Stalemate in Russia’s War Against Ukraine
A leaked U.S. Defense Department (DoD) document that became the source of social media posts offered a dim view of ending Russia’s ongoing war against Ukraine anytime soon. Another indicator that the war could drag on is Russia’s successful test of an intercontinental ballistic missile (ICBM) on Tuesday, April 12, according to the Russian Ministry of Defense.
Further fallout may follow Finland’s official joining if the North Atlantic Treaty Organization on Tuesday, March 4, more than doubling the alliance’s border with Russia. The move came after Russia’s invasion of neighboring Ukraine, as Finland sought to enhance its national defense.
Despite spurring Finland’s leaders to seek NATO membership to deter Russia’s brutal aggression, the administration of Vladimir Putin warned of “retaliatory measures.” Russia now faces the prospect that NATO forces could be positioned near its border, if needed to defend Finland.
“Finland is stronger and safer within the alliance, and the alliance is stronger and safer with Finland as its ally,” said U.S. Secretary of State Antony Blinken.
With a goal of avoiding a direct conflict with Russia, Finland President Sauli Niinistö said the country’s desire is to promote stability in Europe. Finland, along with Sweden, sought expedited NATO membership just weeks after Russia’s invasion of Ukraine on Feb. 24, 2022. Sweden, in contrast, has been slowed in its progress to join NATO by dissent from Turkey. Despite both Finland and Sweden having reputations and traditions as peaceful nations, Turkey claims both countries, especially Sweden, are weak in responding to terrorist organizations. Turkey identified Kurdish groups among those that pose a security threat to its national interests.
In early March 2023, Sweden presented a draft law to its parliament aimed at outlawing support of or participation in terrorist organizations. Sweden’s leaders expressed hope such action would reduce Turkey’s opposition to it joining NATO.
Ukraine President Volodymyr Zelenskyy congratulated Finland in a tweet for joining NATO, which he called the “only effective security guarantee in the region amid Russian aggression.”
CDC Shows the Number of People with Vaccinations Against New Bivalent Variant of COVID-19 Keep Rising
The U.S. Centers for Disease Control and Prevention (CDC) reported rising vaccination rates against COVID-19 and its bivalent variant. The CDC announced that 270,045,602 people, or 81.3% of the U.S. population, have received at least one dose of a COVID-19 vaccine, as of April 5. Those who have completed the primary COVID-19 doses totaled 230,418,632 of the U.S. population, or 69.4%, according to the CDC. Also on April 5, the United States had given a bivalent COVID-19 booster to 52,023,617 people who are age 18 and up, equaling 20.1%. Vaccinations tend to help consumers feel comfortable to shop at stores, travel and otherwise spend money.
The three junior gold mining investments to buy offer investment hedges against inflation and calamitous crises. Any of the three junior gold mining investments to buy could create outsized profits but also incur significant setbacks, depending on where inflation goes and what international crises may cause chaos.
Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Seeking Alpha, Guru Focus and other publications and websites. Paul, who can be followed on Twitter @PaulDykewicz, is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. He is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The uplifting book is great gift and is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many others. Call 202-677-4457 for special pricing on multiple-book purchases.