Gold funds rise during market mayhem

At the end of each month, attention turns towards Donald Trump as the world waits to hear which tariffs will, or will not, be levied on goods entering the US.

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In January, he announced 25% tariffs on most imports from Mexico and Canada. These were confirmed at the end of the month and set to take effect on 4 February.However, on 3 February, after negotiations with Justin Trudeau, then the Canadian prime minister, and Claudia Sheinbaum, the president of Mexico, implementation was delayed by a month. Nonetheless, on 4 February, a 10% tariff was imposed on all imports from China, which was increased to 20% in March. Tariffs were also placed on all imported steel and aluminium.

Now, we are waiting to see what will happen in April.

At the moment, we are expecting to see tariffs targeting countries with persistent trade surpluses with the US, such as Australia, Brazil, Canada, China, the European Union, India, Japan, Mexico, South Korea, Russia, and Vietnam. Additionally, a 25% tariff on goods from countries importing Venezuelan oil directly or indirectly, and a 25% tariff on imported cars is anticipated.

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This aggressive approach to trade, coupled with slowing US growth and persistent inflation, has fuelled fears of an impending recession. Major US stock market indices went down in February. They are also on course for further losses in March, along with the UK, European and Japanese indices.

In times of market stress and political uncertainty, it is not unusual to see the price of gold rise as investors head for safe-haven assets, and that has certainly been the case this year. Last year was also a good year for gold, and in October it went above $2,700/oz (£2,100/oz) for the first time ever and almost hit $2,800/oz, before dropping back to around $2,600/oz at the end of the year.

In January, the price finally broke through $2,800/oz and it has subsequently gone through $2,900/oz, $3,000/oz, and very recently risen above $3,100/oz.

There are several funds that we track which invest in companies that mine and process gold and other precious metals – they have also had a strong start to the year.

The best-performing fund so far this month is the Ninety One Global Gold fund, which has risen by 11.9% and is already showing a year-to-date gain of over 30%. The BlackRock Gold and General, and SVS Sanlam Global Gold &Resources funds are close behind.

Past performance is not a guide to future performance.

Because these funds invest in the shares of companies that are involved in gold mining and processing, they do not track the exact price of gold, but they do follow a similar pattern.

When the price of gold spiked in September 2011, reaching an all-time high of around $1,940/oz, the gold funds also rose sharply. At the time, investor confidence was being undermined by sovereign debt problems in Europe and a potential US default due to delays in raising the debt ceiling.

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Then there was another peak in August 2020 as the global fallout from the pandemic created significant economic uncertainty. Central banks cut interest rates and implemented quantitative easing to support their economies, reducing the opportunity cost of holding gold. At the same time, shutdowns disrupted gold mining and supply chains, further supporting higher prices. On 6 August, gold hit a new high of $2,068/oz, and the gold funds also spiked again.

Over the past 12 months, gold prices and the gold funds have been moving up in tandem.

Past performance is not a guide to future performance.

It is interesting to note that since its peak in 2011, the price of gold has risen by 60%. However, the Sanlam Global Gold & Resources fund has gone down, the BlackRock Gold & General fund is only marginally up, and the Ninety One Global Gold fund has risen by 33%. It looks as though these funds may still have some catching up to do.

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