Three Dividend-paying Gold Funds to Purchase for Income

Three dividend-paying gold funds to purchase for income and potential share price appreciation are gaining attention.

BofA Global Research is among the investment firms that are forecasting a rise in gold prices during the second half of 2024. The three dividend-paying gold funds to purchase are expected to climb if the Federal Reserve cuts interest rates later this year.

Gold also can serve as a hedge against geopolitical risks. Such threats to peace have occurred from Russia’s expanded invasion of Ukraine and the Oct. 7 attack and murder of 1,200 civilians in Israel and more than 100 others later died from injuries related to the attack. In addition, Hamas militants kidnapped 250 others, as well as committed rapes and sexual violence in starting a war in the Middle East that has led to 27,585 deaths in Gaza, as well as the wounding of nearly 67.000 people.

Gold traditionally performs well during geopolitical upheaval, inflation and U.S. dollar depreciation, so the precious yellow metal often is bought as insurance during tumultuous times. Gold is viewed in many parts of the world as a way to shield savings from a possible bank crisis or even government confiscation of traceable personal assets in certain countries. Plus, a recent report by BMO Capital Markets found that the price of gold is no longer driven by real interest rates.

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Three Dividend-paying Gold Funds to Purchase for Income: Bullish Forecasts

Many investment firms are recommending the purchase of gold, wrote Frank Holmes, the chief executive officer and chief investment officer of U.S. Global Investors (NASDAQ: GROW), a provider of eight no-load funds and two exchange-traded funds that feature precious metals, natural resources and emerging markets. One example is XIB Asset Management, a Canadian hedge fund that soared over 200% in the first two years of the pandemic, and forecasts that gold and uranium will outperform the market if the Fed cuts rates.

That view may seem counterintuitive, especially with rates still above 5% and the stock market at an all-time high, but analysts at JPMorgan forecast that the precious metal will benefit later this year from Fed rate cuts and heightened demand for the shiny asset.

Significantly, the active month gold futures contract for the most volume/open interest, closed last Dec. 1 at an all-time of $2,091.70 per ounce, a comfortable $16 per ounce break above the prior all-time record close of $2,075.20 per ounce on August 6, 2020, Jim Woods wrote to subscribers of his January 2024 Successful Investing newsletter. However, the breakout to new highs occurred as the active month futures contract was rolling forward from the December 2023 contract to the February 2024 contract. Secure storage costs result in higher back month futures prices, Woods explained.

“The recent volatility in the yellow metal has resulted in gold becoming a popular investment topic,” Woods opined.

Jim Woods, a former U.S. Army paratrooper, who leads Successful Investing and co-heads Fast Money Alert.

Three Dividend-paying Gold Funds to Purchase for Income: GDX

The VanEck Gold Miners ETF (NYSE ARCA: GDX) became the first gold miners exchange-traded fund in the United States when it launched in 2006. GDX seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the NYSE Arca Gold Miners Index (GDMNTR), a pure-play, global index intended to track the performance of the largest publicly traded companies in the gold mining industry.

Gold miners feature companies whose primary business activities are exploring, extracting and refining the precious yellow metal. Keep in mind that risks in gold mining include the length of time and expense of bringing the precious metal out of the ground and to the market.

The largest holdings in GDX focus on major gold miners that tend to be less volatile and more mature in their business cycle than their smaller peers. These major gold-mining companies tend to be well-capitalized, have vast industry experience and international operations.

For GDX, its biggest holdings and their weighting in the fund’s portfolio are Newmont Corp., 13.08%; Barrick Gold Corp., 8.86%; Agnico Eagle Mines Ltd., 7.94%; Franco-Nevada Corp., 7.10%; and Wheaton Precious Metals Corp., 7.08%. Canada is the country that accounts for the lion’s share of the fund’s net assets with 40.96%, followed by the United States, 18.11%, Australia, 11.94%; South Africa, 10.36%; and Brazil, 7.02%.

The emphasis on major gold mining companies avoids the risk endured by many new and small mining companies that may be unable to endure the time required to produce materials and refine them. On average, it takes more than 20 years before a mine reaches production.

Chart courtesy of www.stockcharts.com

Three Dividend-paying Gold Funds to Purchase for Income: NUGT

The Direxion Daily Gold Miners Index Bull and Bear 2X Shares seek daily investment results, before fees and expenses, of either 200% of the upside or 200% of the downside, respectively, of the performance of the NYSE Arca Gold Miners Index.

The NYSE Arca Gold Miners Index is a modified market capitalization weighted index comprised of publicly traded companies that operate globally in developed and emerging markets. The companies are primarily engaged in mining for gold and, to a lesser extent, in mining for silver. The Index will limit the weight of companies whose revenues are more significantly exposed to silver mining to less than 20% of the Index at each rebalance date.

With many analysts and investment firms forecasting that forecasts that gold, the bullish strategy appears most relevant for the next 12 months. The bullish ETF is Direxion Daily Gold Miners Index Bull 2X Shares (NYSE ARCA: NUGT). The ETF to use to profit is gold mining stocks fall is Direxion Daily Gold Miners Index Bear 2X Shares (NYSE ARCA: DUST. The following cautionary words pertain to both strategies.

Leveraged and inverse ETFs pursue daily leveraged investment objectives that are riskier than alternatives which do not use leverage. These riskier funds seek daily goals and should not be expected to track the underlying index over periods longer than one day. As a result, they are not suitable for all investors and should be used only by those who understand the risk and actively manage their investments.

The largest holdings and their weighting in the index are Newmont Corp., 14.23%; Barrick Gold Corp., 9.47%; Agnico Eagle Mines Ltd., 8.09%; Wheaton Precious Metals Corp., 6.67%; Franco-Nevada Corp., 6.35%. Canada accounts for nearly half the net assets in the index, with 49.47%. The United States is second with 20.12%, Australia, 11.35%; South Africa, 6.20%; and the United Kingdom, 5.50%.

Chart courtesy of www.stockcharts.com

Three Dividend-paying Gold Funds to Purchase for Income: RING

A third dividend-paying gold fund to purchase for income is the iShares MSCI Global Gold Miners ETF (NASDAQ: RING), which seeks to track the investment results of an index composed of global equities of companies primarily engaged in the business of gold mining. RING is another dividend-paying ETF that aims to focus on the largest mining stocks.

The largest holdings in RING differ somewhat from those of GDX and NUGT. RING’s top holdings also feature Newmont, with 18.84% of the portfolio. The next biggest holdings and weightings are Barrick Gold Corp., 12.63%; Agnico Eagle Mines Ltd., 11.11%; and Gold Fields Ltd., 4.83%.

Chart courtesy of www.stockcharts.com

Regardless of what dividend-paying gold ETF an investor may prefer, others also are looking into buying the precious yellow metal. Confirmation of rising interest in gold comes from a new survey that found the most searched personal investment in the United States is the precious metal. Gold has amassed an average monthly search volume of 1,191,827.

Indeed, gold is a commodity that trades based on supply and demand; the ratio between supply and demand determines the price of gold at the time of the investment, the survey found.

With the elevated interest rates and the continual concerns of a recession in the United States, gold can be a reliable long-term investment and outperform other assets such as properties and different equities since it is easier to liquidate, the survey researchers wrote. There are also tax advantages in gold investments, since prices of the precious metal jumped considerably in 2023 and have shown staying power compared to other markets.

Three Dividend-paying Gold Funds to Purchase for Income: Top Holding

All three of the dividend-paying gold ETFs to purchase hold Denver, Colorado-based Newmont Corporation (NYSE: NEM), the world’s leading gold company, as their largest position. Newmont not only produces gold but also silver, copper, zinc and lead.

The company, the only gold producer listed in the S&P 500 Index, has its mining assets in “favorable” places in Africa, Australia, Latin America & Caribbean, North America and Papua New Guinea, according to its website. Newmont is among many precious metals mining stocks whose share prices fell by double-digit percentages during the past 12 months.

Woods and his partner Mark Skousen, PhD, a Presidential Fellow at Chapman University, co-head the Fast Money Alert trading service that produced a 22.71% return for their subscribers by recommending Newmont slightly longer than two months between March and May 2020. Fast Money Alert also turned a profit of 58.33% by advising subscribers to buy Newmont call options in January 2015 before recommending their sale roughly three weeks later. Skousen, a scion of Ben Franklin who sometimes impersonates his Founding Father ancestor, also has led the Forecasts & Strategies investment newsletter for the past 44 years.

Mark Skousen, leader of Forecasts & Strategies and co-head of Fast Money Alert, talks to Paul Dykewicz.

Skousen wrote in his February 2024 Forecasts & Strategies investment newsletter that gold remains above $2,030 an ounce. Skousen continued that he expects gold to rise in the next year.

Chart courtesy of www.stockcharts.com

Another fan of Newmont as a turnaround opportunity is Michelle Connell, president and owner of Dallas-based Portia Capital Management, LLC. But mining stocks carry risks, she added.

Despite the availability of investing directly in gold mining companies that are publicly traded, they can be “very volatile,” Connell counseled. Such gold mining stocks may fall with the whims of the stock market, as well as face geopolitical threats that can disrupt gold production in certain countries, she added.

Michelle Connell leads Dallas-based Portia Capital Management.

“If someone is an investor who wants access to physical gold, they’re going to pay in excess of $2,000 an ounce,” Connell said. “That is not convenient for most individual investors.”

The stock is selling at its lowest price-to-earnings (P/E) in five years at 15.30 x forward earnings, Connell told me. Newmont’s average P/E is 25, she added.

Income lovers will appreciate Newmont’s dividend yield of 4.65% that is supported by strong free cash flow estimated at $3.7 billion for 2024 and $4.5 billion for 2025, Connell continued.

Currently, NEM’s “all-in” cost of production for gold is $1,400 per ounce. With gold selling at close to $2,000 per ounce, NEM has strong profitability, Connell stated.

With gold estimated to rise to $2,500 per ounce, Newmont’s profit margin could go higher. The company is scheduled to report financial results on Feb. 22.

“Given it is short-term downward trend, I would dollar-cost average into a position over the course of the next few months,” Connell counseled. “Several analysts estimate that there is 20-35% upside over the next 12-18 months. I agree with them.”

Three Dividend-paying Gold Funds to Purchase for Income: Pension Leader Perspective

Bob Carlson, a former pension fund chairman who now heads the Retirement Watch investment newsletter, is recommending gold though a trust. In the February 2024 issue of Retirement Watch, Carlson advised his subscribers that gold continues to deliver “solid returns,” even though it had a slow start in the initial weeks of 2024.

“I believe gold’s recent strength is due largely to international tensions and not economic fundamentals, Carlson wrote.

Bob Carlson, who heads Retirement Watch, answers questions from Paul Dykewicz.

Geopolitical Risks Worsen

In the Middle East, geopolitical risk is rising. The United States has responded militarily to the killing of three American service members in Jordan on Sunday, Jan. 28, by striking sites in Iraq and Syria used by Iranian forces and Iran-backed militants. U.S. military forces hit targets at facilities involved in attacking U.S. personnel in the region, National Security Council spokesman John Kirby said. The targeted facilities included command and control operations, intelligence centers, rockets and missiles, as well as drone storage sites.

“The United States does not seek conflict in the Middle East or anywhere else in the world, President Biden said. “But let all those who might seek to do us harm know this: If you harm an American, we will respond.”

The Israeli Defense Force (IDF) continues to take out Hamas leaders who are hiding in neighboring Gaza after orchestrating the Oct. 7 attack against civilians in Israel that killed 1,200 people. A potential hostage exchange between Israel and Hamas is under discussion but remains elusive.

Gaza’s Hamas-run Health Ministry reported more than 27,100 people have died there since the Israeli Defense Force (IDF) began a military response to the Oct. 7 murder of men, women and children living there, along with the kidnapping of around 250 people from Israel to the Gaza Strip. In addition, the Hamas Health Ministry reported more than 65,000 people have been wounded in Gaza since the Oct. 7 invasion of Israel.

With world leaders expressing concern about the deaths and escalating violence in the region, the International Court of Justice ordered Israel on Friday, Jan. 26, to limit deaths and damage but did not demand a cease-fire in the Palestinian territory.

A lasting peace remains uncertain in the Middle East where militant groups like Hamas in Gaza have a goal of annihilating Israel and killing its people. Based on reports from the Hamas-run Health Ministry and other sources, more than 90,000 people have been killed or injured since Hamas militants sparked the latest war in the Middle East with its Oct. 7 attack. The Hamas infiltration of Israel caused the IDF to respond militarily to try to end the threat rather than await the next one without seeking to stop further incursions.

The three dividend-paying gold funds to purchase for income offer a hedge against geopolitical risk as wars are worsening in multiple parts of the world.

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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. Attention Holiday Gift Buyers! Consider purchasing Paul’s 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 or autographed copies! Follow Paul on Twitter @PaulDykewicz. He 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, after writing for the Baltimore Business Journal and Crain Communications.