A Closer Look at Gold Miners & the Leverage Advantage

Considering what’s been going on with geopolitical risks and the shifting value of the U.S. dollar this year, many investors have been keeping an eye on gold.Key Takeaways: The price of gold has dominated the market narrative this year, but gold mining equities are offering a compelling portfolio case. During a recent Sprott webcast, Sprott’s Justin Tolman explained how gold miners harness operating leverage to generate potentially stronger gains than bullion itself during bull markets. Sprott offers access to gold miners through the actively managed Sprott Active Gold & Silver Miners ETF (GBUG ). Given what these precious metals bring to the table, this should not come as a particular surprise. Investing in the yellow metal can work well in portfolios as a store of value, diversifier, and hedge against inflation. However, all the attention on the metal may be causing some folks to overlook the opportunities within gold miners. In a recent Sprott webcast, Justin Tolman, senior portfolio manager and economic geologist at Sprott Asset Management, discussed the opportunities that are arising within mining equities.Gold Miners as an Offensive Portfolio HoldingAs mentioned before, gold is oftentimes viewed through the lens of portfolio defense, due to its traditional benefits of diversifying a portfolio and hedging against currency devaluation. That said, gold mining companies can be used for more offensive purposes, as Tolman highlighted during the webcast. See More: Gold Miners: Strong Fundamentals Meet Underrated Valuations Tolman noted that gold miners can harness their operating leverage to take advantage of rising gold prices. In bull markets where demand is high, mining companies can use operating leverage to tackle gains at a potentially stronger rate than gold bullion itself. “This isn’t a story where I’m telling you to hope for higher gold prices,” Tolman added. “The cash flows are already in the numbers. The balance sheets are the best they’ve been in decades. By and large, we’ve got the lowest hedging in years. The capital is returning after reinvestment in the business, and net cash is increasing.” That said, operating leverage is a double-edged sword. If the metal’s price falls, gold miners tend to see steeper losses than gold bullion during a sell-off. This is why active management in this industry can be particularly advantageous, as Tolman pointed out. See More: Robots Need Rare Earths: How to InvestGBUG's Active Approach to Mining ExposureFor those looking to add mining companies to their portfolio, the Sprott Active Gold & Silver Miners ETF (GBUG ) could be worth a closer look. True to its name, GBUG is an actively managed fund that provides exposure to both gold and silver miners. This sort of approach could be beneficial for navigating both a bull and bear market for the yellow metal. When gold’s doing well, GBUG’s companies can harness their operating leverage to pursue higher gains. Meanwhile, when its price falters, the fund’s active management can reposition to mitigate potential losses. For more news, information, and analysis, visit the Gold/Silver/Critical Minerals Content Hub.DisclosuresAn investor should consider the investment objectives, risks, charges, and expenses carefully before investing. To obtain a Prospectus, which contains this and other information, contact your financial professional or call 888.622.1813. Read the Prospectus carefully before investing, which can also be found by clicking one of the links below. Past performance is no guarantee of future results. One cannot invest directly in an index. Funds that emphasize investments in small/mid-cap companies will generally experience greater price volatility. Diversification does not eliminate the risk of investment losses. ETFs are considered to have continuous liquidity because they allow an individual to trade throughout the day. A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses, affect the Fund’s performance. Sprott Asset Management USA, Inc. is the Investment Adviser to the ETFs. ALPS Distributors, Inc. is the Distributor for the ETFs and is a registered broker-dealer and FINRA Member. ALPS Distributors, Inc. is not affiliated with Sprott Asset Management USA, Inc. or VettaFi. Exchange Traded Funds (ETFs): SETM, LITP, URNM, URNJ, COPP, COPJ, NIKL, SGDM, SGDJ, SLVR, GBUG, METL, and REXC Physical Bullion Funds: PHYS, PSLV, CEF, and SPPP. 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.