Investors looking to bet on global gold miners in the wake of weaker prices of the yellow metal could consider putting money in DSP Mutual Fund’s World Gold Fund. The scheme invests in the offshore-registered Blackrock Global Funds – World Gold Fund, which in turn invests in gold mining companies. Investment advisors said an investment in the product would be a contrarian bet as a stronger dollar has further dented appetite for the precious metal.
Gold has lost 10% in rupee terms and 7% in dollar terms over the last one year after hitting a record high in August 2020. Mirroring the weakness in gold prices, the fund has lost 23.53% over the last one year. Over three- and five-year period, it has returned 19.24% and 0.47% respectively on an annualized basis. Given the sharp fall over the last one year, analysts believe it provides a good entry point for investors who can bear volatility and have a higher risk appetite.
DSP said the valuations of the companies held by the fund is cheaper than longer-term averages. A note by DSP MF says gold mining companies held by the underlying fund are witnessing all-time high free cash flows. The fund is at a PE of less than 13 as against historical average of 18 times.
Analysts believe the current correction in gold prices is one in a longer bull market.
Typically, when gold prices move up, the fund outperforms gold price, while they could fall more when gold prices dip. For instance, in 2020, Gold prices moved up from $1477 on 18th March’20 to $2120 on 7th Aug’ 20, a gain of 50% while the scheme’s NAV doubled in the same period. Investors could stagger investments into the fund over the next three months with a time frame of up to three years.
“Covid cases are on the rise in the US, we could see profit booking in equities after the sharp run up and demand for gold coming back as a hedge against inflation,” says Rupesh Bhansali, head (Distribution), GEPL Capital.
Higher than normal levels of inflation, central bank gold purchases and investment demand for gold could trigger a rebound in gold prices, said DSP.
“25% of all US Dollars were printed over the last year and a half. This is a massive financial debasement and has historically helped Gold,” says Sahil Kapoor, Head (Products), DSP Mutual Fund .
Some financial planners believe it would be better to bet on gold and gold mining shares separately. “You could invest in sovereign gold bonds and buy mining stocks separately for efficient returns rather than mixing the two in a single fund,” says Vineet Nanda, Founder, Sift Capital.