BAKERSTEEL Precious Metals Fund I Class Factsheet September 2021


Headwinds persist for precious metals, yet miners are in good shape for recovery

  • Continued US dollar strength and speculation over US rate hikes have kept precious metals under pressure.
  • The question remains, are we entering a new period of heightened inflation or will price rises prove transitory?
  • The Denver Gold Show held during September highlighted the healthy state of the industry and continued capital discipline among mid-to large-cap producers.
  • Margins are strong, while record levels of dividends are being paid.
  • Sensible M&A is back


The precious metals sector remained under pressure during the month, in what remains a challenging time for gold and silver miners. Speculation over the timing of US nominal interest rate hikes in response to the strong US economic recovery and rising inflation has weakened investor sentiment towards precious metals, despite the limited scope for tightening by the Fed.  What remains to be seen is whether higher inflation rates will prove persistent, as supply chain disruption, rising energy costs and rebounding consumer demand drive prices higher, amid a shift by central banks towards average inflation targeting. Gold has historically thrived as an effective inflation hedge and a period of heightened inflation could drive gold prices sharply higher. Furthermore, we note that real interest rates (not nominal) are highly likely to remain low or negative, despite a projected modest rate hike, in the face of growing evidence that inflation is here to stay for longer than policymakers expect.


Despite the ongoing pressure on precious metals prices, miners are in a strong position. Our team attended the Denver Gold Show during the month which highlighted that much of the sector has maintained capital discipline, with many mid- to large-cap companies using gold prices of USD 1200-1350/oz for reserves and planning. As a result, margins are strong and companies are continuing to increase dividends. Encouragingly companies are also increasingly engaged with ESG issues, a core area of our research process. A further significant update for the gold sector in recent days has been the announcement of the merger of Agnico Eagle Mines and Kirkland Lake Gold, creating the 3rd largest gold miner in the world. Kirkland Lake Gold has been one of the Fund’s largest holdings and we consider meaningful consolidation such as this to be a positive indication of the health of the industry.


We believe the current pull-back for the precious metals sector is nearing its end and that the positive medium- to long-term outlook for gold and silver miners has not altered. As such, the Fund continues to focus on those companies with the best assets, effective management, attractive shareholder returns and that operate in an ethical and sustainable manner in line with our own ESG principles. As in previous recovery periods, it is our view that the Fund’s value-driven investment approach offers the best risk-reward opportunity for investors once upward momentum returns to the sector.

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