The recent invasion of Ukraine by Russia has caused investors to turn their eyes away from the US Federal Reserve (Fed) and towards geopolitics.


Many are now worried less about the Fed’s interest rate tightening schedule and more about energy prices and geopolitics. As a result, gold has awoken from its slumbers (having been in a consolidation pattern for the past 18 months). Now, some are wondering what all this will mean for gold miners and indeed silver during coming quarters. Generalist investor participation in the gold and silver mining space is still at historic lows, and the fund’s performance relative to the underlying metal is geared to those flows, reflected most clearly in the gold/silver ratio (see chart below). 

Gold silver cross (price of gold in silver) 

Why geopolitics is turning eyes towards gold chart1

Source: Bloomberg, as of 22.02.2022 

Mining companies have struggled during a year and a half of retracement in the US dollar-denominated gold price (between late 2020 and February 2021). Their operating margins have narrowed in the face of rising input costs. This environment has affected silver miners more than gold miners. Silver miners have naturally lower operating margins and therefore more sensitivity to silver price movements. This should be to the fund’s benefit, in our view, as things improve, because the silver miners are highly geared to rising prices. The gold/silver ratio remains elevated at about 80:1, but as participation broadens, we believe this ratio should fall, driving the relative performance of the fund.


Investors should be aware of sector concentration risk: the fund’s investments are concentrated in natural resource companies, and may be subject to a greater degree of risk and volatility than a fund following a more diversified strategy. Silver tends to outperform gold in a rising gold price environment and it tends to underperform gold when sentiment moves against the sector. The fund may be subject to other risk factors: please see the Prospectus for a more detailed explanation of the fund’s risks. 

The fund has shown periods of ‘lag and then leap’, compared with the gold price 

Why geopolitics is turning eyes towards gold chart2

Source: Jupiter, FactSet, as of 21.02.2022 

As can be seen from the graph above, at the start of a new period of rising gold prices, the fund tends to lag the move of pure gold mining products (and even of bullion over short periods) due to the nature of silver, which the fund also holds, and which lags and then plays catch up. This ‘lag and then leap’ character of the fund was seen twice during 2020 (see highlighted areas of chart) and this current environment feels similar, in our view. Initially, investment capital tends to flow into the largest gold miners (like Barrick) before percolating down into the mid-cap gold producers and then in due course the silver and silver miners that we own.


In our view, the current situation looks positive for the fund. Firstly, the Fed is looking as hawkish as it can be. Secondly, market expectations of inflation halving in the second half of 2022 are as optimistic as one could imagine. Thirdly, the Ukraine conflict has not yet reached its endgame. 



Rolling 12 month performance. As at 31.01.22 

Past performance is not a guide to future performance. Returns may increase or decrease as a result of currency fluctuations.


Benchmark is 50% Gold Price (XAU), 50% FTSE Gold Mines Index with net dividends re-invested.
The benchmark is a point of reference against which the performance of the Fund may be measured. Source: Factset. © Morningstar. All Rights Reserved. I EUR Accumulation terms. All information as at 31/01/2022 unless otherwise stated. On 3rd December 2018 the benchmark changed from Gold price (XAU) to 50% Gold Price (XAU), 50% FTSE Gold Mines Index with net dividends re-invested. The composite benchmark is not expected to include exposure to silver, therefore although a large proportion of the Fund’s investments may be components of the composite benchmark, the Fund has the ability to deviate significantly from the composite benchmark for example, as a result of the fund’s exposure to silver. 

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