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. 

Performance

JUPITER GOLD & SILVER FUND (I USD ACC) 

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. 

The value of active minds: independent thinking

 

A key feature of Jupiter’s investment approach is that we eschew the adoption of a house view, instead preferring to allow our specialist fund managers to formulate their own opinions on their asset class. As a result, it should be noted that any views expressed – including on matters relating to environmental, social and governance considerations – are those of the author(s), and may differ from views held by other Jupiter investment professionals.

Important Information

On the 15 February 2021, the Merian Gold & Silver Fund changed its name to the Jupiter Gold & Silver Fund.

 

This is a marketing communication. Please refer to the latest sales prospectus of the sub-fund and to the Key Investor Information Document (KIID), particularly to the sub-fund’s investment objective and characteristics including those related to ESG (if applicable), before making any final investment decisions.

 

This commentary is intended for investment professionals and is not for the use or benefit of other persons, including retail investors.

 

This commentary is for informational purposes only and is not investment advice. Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. Initial charges are likely to have a greater proportionate effect on returns if investments are liquidated in the shorter term.

 

[Past performance is not a guide to future performance.] Holdings examples are for illustrative purposes only and are not a recommendation to buy or sell. The views expressed are those of the Fund Manager at the time of writing, are not necessarily those of Jupiter as a whole and may be subject to change. This is particularly true during periods of rapidly changing market circumstances. Every effort is made to ensure the accuracy of the information provided but no assurance or warranties are given.

 

This is not an invitation to subscribe for shares in the Jupiter Asset Management Series plc (the Company) or any other fund managed by Jupiter Asset Management (Europe) Limited or Jupiter Investment Management Limited. The Company is an investment company with variable capital established as an umbrella fund with segregated liability between sub-funds which is authorised and regulated by the Central Bank of Ireland pursuant to the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011, as amended. Registered in Ireland under registration number 271517. Registered office: 33 Sir John Rogerson’s Quay, Dublin 2, Ireland.

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The sub fund(s) may be subject to various other risk factors, please refer to the latest sales prospectus for further information.
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EU/EEA countries in which the Company is registered for distribution: Unless otherwise specified in this document, Citibank Europe plc (the Company’s Administrator) is responsible for processing subscription, repurchase and redemption orders and making other payments to Shareholders. Citibank Europe plc, 1 North Wall Quay, Dublin 1, Ireland, email: [email protected].
The following information and documents are available from www.eifs.lu/jupiteram: Information on how orders (subscription, repurchase and redemption) can be made and how repurchase and redemption proceeds are paid; Information and access to procedures and arrangements related to investors’ rights and complaints handling; Information in relation to the tasks performed by the Company in a durable medium; The latest sales prospectus, the articles of association, the annual and semi-annual reports and the Key Investor Information documents. The Manager may terminate marketing arrangements. Information on sustainability-related aspects are available from jupiteram.com.

 

Austria: Erste Bank der oesterreichischen Sparkassen AG (Austrian Facilities Agent), Am Belvedere 1, 1100 Vienna, Austria.

 

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Germany: GerFIS – German Fund Information Service UG (Haftungsbeschränkt), Zum Eichhagen 4, 21382 Bri