White Paper - SGDM

Investing in industry sectors can generate attractive returns but there are trade-offs – higher risk and volatility. We believe that gold bullion should represent the core of your allocation to precious metals given its diversification benefits. When gold is in an uptrend like it has been in 2016, investors should also consider including an allocation to gold stocks to potentially capture additional upside.

Gold stocks are volatile but can their volatility be used to your advantage? If we analyze the last bull market in gold stocks from August 2000 to August 2008, the group increased by an impressive 600%, but the ride was not a smooth one. Over this eight year bull market, there were 10 price corrections that ranged between -17% to -36%.

For some investors, these price corrections may have convinced them to sell their gold stocks, while other investors may have viewed them as buying opportunities. Price corrections are an important condition to sustain a bull market over longer time frames as they help incent new buyers to enter the market.

After jumping 181.7% from the low on January 19, 2016 to the recent high on August 2*, gold stocks are in the midst of a price correction with prices down 31%. If history repeats itself, this price correction may represent an opportunity for investors to add some exposure to gold stocks.

Sprott Asset Management is a well-known and long-time investor in precious metals.

Including gold stocks to your gold allocation has the potential to boost returns while maintaining the portfolio diversification benefits of gold. Consider the Sprott Gold Miners ETF (NYSE Arca: SGDM) and the Sprott Junior Gold Miners ETF (NYSE Arca: SGDJ).