Gold Is Hitting New Highs, But Miners Have Catch-Up Potential – Sprott's New Actively-Managed ETF Seeks To Spot The Biggest Gainers

While the Trump administration has promised to usher in a new era of American greatness, at the present juncture, the one investment that has stood out is gold. Widely considered a universal safe haven, the precious metal has surged to fresh heights in part due to trade war rhetoric. However, the rare and desirable commodity has also benefited from broader macroeconomic concerns and speculation on how central bank policies may adjust to shifting realities.

Recently, the fallout in the equities sector impacted even the most innovative tech juggernauts, demonstrating that few arenas are safe. Amid this contentious environment, demand for physical gold bars has skyrocketed — indeed, the wealthiest of clients are transporting bullion on commercial jets. At the same time, physical ownership of hard assets incurs myriad inconveniences, such as insurance and safeguarding.

Fortunately, this is where actively managed exchange-traded funds such as the Sprott Active Gold & Silver Miners ETF GBUG step up to fill the opportunity gap. Because of its protocol, exposure to GBUG allows market participants to leverage the collective wisdom and acumen of the experts running the fund. What's more, GBUG focuses on mining enterprises, which may offer greater return potential than just the underlying asset.

Mining Complex's Catchup Phase Creates Potential Opportunities

While it's not always the case, the share price trajectory of established gold miners often tends to correlate with the spot price of the namesake metal. As it turns out, however, following a mining complex that has lagged behind gold primarily due to macro challenges such as rising labor costs and foreign government pressures, year-to-date miners have been leading. With significant catch-up potential, if individual miners garner momentum, the GBUG ETF could be one of the funds to watch.

"Gold and silver mining stocks have historically been correlated to bullion, but in recent years, they've lagged the price of the physical metals," remarked John Hathaway, CFA, managing partner at Sprott Inc SII and senior portfolio manager at Sprott Asset Management USA, Inc. In Hathaway's estimation, "[g]old and silver mining stocks could offer significant catch-up potential."

Naturally, gold commands a rich history as a monetary asset and as a universal store of value. Therefore, it's not surprising that so many investors have rushed to the perceived protective umbrella of bullion. However, what makes GBUG potentially appealing to investors is its exposure to silver mines as well. Because silver combines the attributes of precious metals with the underlying utility of industrial metals, the case for this "hybrid" commodity is arguably strong.

As Adrian Ash, director of research at BullionVault told MoneyWeek, "55% of annual demand [for silver] comes from industry or tech, compared to less than 10% for gold." Using the expert's description, if an object features an on/off switch, it most likely contains silver.

Not only that, demand for silver – thanks to its broad end-uses – is accelerating worldwide. Because of this reality, the silver market has actually been in deficit for several years, per research cited by Sprott. What's more, this dynamic may worsen in terms of readily available silver inventories as most of the silver mined is consumed for various applications, such as solar panels, electric vehicles and electronics.

Fundamentally, then, investors could be staring at an arena of aggressive demand and declining supply. GBUG facilitates targeted exposure to enterprises specializing in both gold and silver, making it a relevant vehicle under the current paradigm.

Macroeconomic Uncertainty Might Favor Actively Managed Investments

Easily one of the biggest topics in the current business media ecosystem is the broader impact of the Trump administration's tariffs and the subsequent trade wars. Early in his administration, President Donald Trump threatened to impose levies on key economic partners, including Mexico and Canada. However, he has often walked back the threats, even exempting certain industries.

All the same, affected governments have taken action, with China recently retaliating with tariffs on major agricultural imports from the U.S., especially soybeans. This move was in response to the White House imposing an additional 10% levy on Chinese imports. Adding to the pressure, the president hit the Canadian steel and aluminum industry with an additional 25% tariff, raising the total levy to 50%.

If that wasn't enough, Trump issued a stern warning to Canada, noting that if it does not remove existing tariffs, he will significantly raise duties on cars imported from the northern neighbor. Amid the turmoil, growth-driven technology firms – most conspicuously the so-called Magnificent Seven – have recently suffered a huge correction.

On the other end of the scale, the gold market – one of the oldest sectors – has witnessed significant demand, not just from individual investors but from central banks. Fundamentally, this pop in institutional demand signals a strategic shift in global finance. Essentially, major powers are seeking to reduce reliance on the U.S. dollar amid escalating geopolitical risks.

Indeed, the tariffs themselves provide support for this strategic argument as multiple nations have demonstrated that they do not necessarily fear the Trump administration's rhetoric. Instead, tariff-impacted nations are choosing to fight fire with fire, subsequently increasing the risk of broader economic uncertainty.

Under this environment, both individual and institutional investors have sought to de-leverage themselves from the dollar with gold. However, it's possible that due to the projected catch-up effect, the mining complex may eventually offer greater reward potential. That's where GBUG may appeal to certain risk-tolerant market participants.

Why Active, Why Now?

There's no such thing as a free lunch, especially on Wall Street. While active management may sound intriguing for specific investors, the benefits of an expertly guided fund come with a higher expense ratio. It then begs the question: why active ETFs and why now?

True, investors can choose to acquire units of passive ETFs, which track indices and, therefore, a wider basket of securities. Sure enough, Sprott delivers a range of passive funds that can appeal to various needs. However, the mining industry can be a convoluted arena, and GBUG can help stakeholders navigate the complex waters with experts at the helm.

Primarily, gold and silver miners are not monolithic entities. There is a very wide dispersion of returns historically for gold and silver miners. The complexity of mining operations – ranging from geopolitical risks to energy costs and environmental regulations – creates a highly dynamic landscape. Passive strategies, which simply mirror an index, might not fully account for these nuances, which is where active management shines.

Secondly, Sprott Active Gold & Silver Miners ETF implements a value-oriented, contrarian approach, stemming from decades of expertise in the precious metals landscape​. Rather than blindly following industry trends, GBUG's fund managers assess individual miners based on operational strength, financial health and growth potential. The end result is a portfolio that aims to maximize upside while mitigating downside risks.

Plus, with market conditions constantly shifting under the new economic paradigm, the ability to make real-time adjustments can be critical. With global central banks apparently unsure of what may lie ahead, gold has witnessed a tremendous demand surge. Still, if forecasts are correct, the currently lagging mining complex may even have the potential to offer the biggest payout – and GBUG's fund managers are actively pressing to extract the best opportunities.

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Featured photo by Pete Linforth from Pixabay.

This post contains sponsored content. This content is for informational purposes only and is not intended to be investing advice.

Gold and precious metals are referred to with terms of art like store of value, safe haven and safe asset. These terms should not be construed to guarantee any form of investment safety. While "safe" assets like gold, Treasuries, money market funds and cash generally do not carry a high risk of loss relative to other asset classes, any asset may lose value, which may involve the complete loss of invested principal.

An investor should consider the investment objectives, risks, charges, and expenses carefully before investing. To obtain a Sprott Active Gold & Silver Miners ETF Statutory Prospectus, which contains this and other information, visit https://sprottetfs.com/gbug/prospectus, contact your financial professional or call 888.622.1813. Read the Prospectus carefully before investing.

The Sprott Active Gold & Silver Miners ETF is new and has limited operating history. Investors in the Fund should be willing to accept a high degree of volatility in the price of the Fund's shares and the possibility of significant losses. The Fund will be concentrated in the gold, silver and precious metals mining and related industries. As a result, the Fund will be sensitive to changes in, and its performance will depend to a greater extent on, the overall condition of the gold, silver and precious metals industry, highly dependent on the price of gold and silver bullion. The gold, silver and precious metals industry can be significantly affected by competitive pressures, central bank operations, events relating to international political developments, the success of exploration projects, commodity prices, adverse environmental developments and tax and government regulations. An investment in the Fund involves a substantial degree of risk. The Fund is not suitable for all investors. The Fund is considered non-diversified and can invest a greater portion of assets in securities of individual issuers than a diversified fund. As a result, changes in the market value of a single investment could cause greater fluctuations in share price than would occur in a diversified fund.

The Fund adviser's judgments about the growth, value, or potential appreciation of an investment may prove to be incorrect or fail to have the intended results, which could adversely impact the Fund's performance relative to its benchmark.

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Sector weightings are determined using the Bloomberg Industry Classification Standard ("BICS").

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