Alt Thinking September 30, 2024
Commentary
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Ninepoint Gold and Precious Minerals Strategy

Ninepoint Gold and Precious Minerals Strategy Commentary- Q3, 2024
Investment Team
  • Ninepoint Partners Sub Advised by Sprott Asset Management (SAM)
    Ninepoint Partners Sub Advised by Sprott Asset Management (SAM)
    Sprott Asset Management LP is an alternative asset manager and a global leader in precious metal and real asset investments. Through its subsidiaries in Canada, the US and Asia, the Corporation is dedicated to providing investors with best-in-class investment strategies that include Exchange Listed Products, Alternative Asset Management and Private Resource Investments. The Corporation also operates Merchant Banking and Brokerage businesses in both Canada and the US. Sprott is based in Toront...
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Key Takeaways
  • Gold and silver prices surged significantly in Q3 2024, with gold up 13.23% and silver up 6.92%, driven by Fed rate cuts and ongoing easing expectations.
  • Precious metal equities also saw robust gains, with earnings estimates for gold miners up nearly 70% through the first three quarters of the year.
  • Analyst forecasts for gold and silver prices remain conservative compared to spot prices, impacting earnings estimates and valuation metrics for precious metal equities, despite strong fundamental performance and increasing investor interest globally.

The Stealth Bull Market in Precious Metals Continues to Unfold

Gold and silver continued their torrid advance through the third quarter of this year, propelled by the super-sized rate cut from the Fed and the spectre of more easing to come. Through Q3, gold and silver bullion had gained 13.23% and 6.92%, respectively, adding to their already sizeable gains through the first half of the year. Precious metal equities also responded to strong gold and silver prices with the GDX and GDXJ rising by 15.92% and 14.46% respectively.1 As worries about cost inflation have abated for the miners, investors are beginning to shift their fundamentals for precious metal equities. Earnings and cash flow are about as fundamental as it gets for valuation purposes. Through the first three quarters of 2024, we have seen earnings estimates for the NYSE Arca Gold Miners Index (GDM) rise by nearly 70%, and these estimates are likely to continue rising into year-end. We expect this number to increase further as analysts begin using spot prices rather than their forecast prices. It is important to note that the precious metal miners are seeing their profits rise at a much faster clip than the widely followed S&P500, which has seen its earnings expectations increase by under 10% over the same period. 

Precious Metal Equities are Seeing Rapid Increase in Earnings Estimates Through 2024

Source: Bloomberg

Curiously, the forecast prices for gold and silver have diverged significantly versus spot gold and silver prices.

Analyst Gold and Silver Price Forecasts Remain Conservative Relative to Spot Prices

Source: Bloomberg

As the table above illustrates, the spot price of gold and its forward curve diverge from the median analyst forecast by larger and larger amounts as we look into the future. For example, at the time of writing, gold is forecast to average $2,290/oz in 2026, dropping to $2,200/oz in 2027. Similarly, the long-term forecast price for silver is $28/oz, significantly lower than the spot and implied forward prices. The current conservative nature of commodity price forecasts has a twofold impact on precious metal equities. Firstly, using lower commodity prices in estimating earnings produces estimates that are likely to prove conservative. Secondly, lower metal price assumptions also reduce the Net Asset Value (NAV) used to help calculate price targets for the companies in question.

We saw a similar theme play out in the early 2000s when conservative commodity price forecasts led to conservative price targets for precious metal miners. As realized prices for gold and silver continued to improve through the early 2000s, analysts frequently chased their target prices and earnings estimates higher.

As the bull market in the precious metals continues to unfold, we remain baffled with investor behavior towards the space. We don’t think that investors are asleep at the wheel. To the contrary, we think that investors have yet to turn on their engines and focus on the massive opportunity unfolding  in the market. The chart below illustrates this disconnect. Since the beginning of 2019, we have seen the price of gold rise nearly 80% - an astounding return by nearly any metric. Over this period the shares outstanding in the widely followed GDX ETF have declined by nearly 23%. This continues to be one of the biggest headscratchers for us for a simple reason. Rising metal prices result in rising revenues for miners. We do accept that there was a period of rising costs as a result of the inflationary period following COVID. However, over the past year, most miners have a firm grasp on costs and are seeing their profitability and margins rise. And yet, investors have continued to ignore this development and have chosen to continue redeeming their precious metal holdings.

Source: Bloomberg

Traditionally, gold has taken its cues from the US Dollar and real yields. Over the past two years, this relationship has been on hiatus. We have seen the US Dollar remain rangebound while real yields have strengthened. If we had been observing this behaviour before COVID-19, this recipe would have been disastrous for gold. Today, the paradigm and indeed the type of players transacting in gold have changed. Gold has continued to go from strength to strength over the past two years as newer larger entities have continued to emerge with substantial appetite for the precious metal. Since 2022, we have seen massive levels of gold buying by Central Banks around the world. Through 2024, nearly 480 tons of gold have been added to the central bank coffers according to the IMF. 

Source: Bloomberg

Earlier, we noted the emergence of multiple buyers for gold, and we would like to elaborate on what we are noticing to that end. Through 2023 and the first half of 2024, China was the elephant in the gold-buying room. So strong was the demand in China that the Shanghai gold prices traded at a strong premium to the COMEX spot price. We noticed a shift in the Chinese demand in May with the Chinese central bank announcing a “pause” in gold purchases. It triggered a small sell-off as nervous gold holders who were raising the Chinese demand tailwind liquidated their holdings.

Source: Bloomberg

The sell-off didn’t last long as other central banks continued their purchases including the likes of Turkey, India and Poland – a rather diverse group it is. The other elephant in the room as it pertains to gold has been India, which lowered its import duty on gold imports in July. This ignited a massive surge in gold demand out of India. While we do not have the full data yet, gold demand has increased by over 30% according to some sources and raised the overall demand to record levels.

We have also witnessed a reemergence of investor interest in the West as seen through the ETF flows. Since May 2024, gold ETFs which had been witnessing outflows have recorded ~3 million ounces of positive flows into their coffers. The existing bullion ETF holdings stand around 83.5 million ounces which are still well below the record ~110 million ounces. 

Source: Bloomberg

We would be remiss in missing an important development in silver – or rather the lack thereof as far as China goes. While we saw the demand for gold cool in China in recent months, the demand for silver has continued. The recent stimulus measures introduced by China are aimed at improving local demand but also towards encouraging industrial activity. China is a large source of demand for silver particularly due to its dominance in the field of solar manufacturing. On the Shanghai exchange, silver continues to trade at a hefty premium despite the large run-up we have witnessed in the white metal. 

Source: Bloomberg

The action in precious metal equities has remained unchanged since the second quarter. As we saw in the first half of the year, the moves we have seen in precious metal equities have come on the back of rising earnings and profitability and the upside has come in spite of negative investor sentiment and negative asset flows. We expect further upside to earnings should current prices hold or strengthen.

The factors driving gold and silver are numerous but more importantly, whale buyers have emerged who are actively buying the dip and supporting ever stronger gold and silver prices. The other factors, namely, systemic risk, geopolitical shifts, and global economic transformation (hat tip to BRICS countries). Each driver is telling a part of the story, and together they paint a picture of a re-alignment of the economic world order. The prior bull market in precious metals emerged like a phoenix out of the tech wreck of the early 2000s. We are seeing signs that history will rhyme yet again.

Maria Smirnova and Shree Kargutkar 
Sprott Asset Management
Sub-advisor to the Ninepoint Gold & Precious Minerals Fund,
Ninepoint Gold Bullion Fund, Ninepoint Silver Bullion Fund and the Ninepoint Silver Equities Fund 

1. Bloomberg

NINEPOINT GOLD & PRECIOUS MINERALS FUND - COMPOUNDED RETURNS¹ AS OF SEPTEMBER 30, 2024 (SERIES F NPP300) | INCEPTION DATE: OCTOBER 12, 2004

MTD

YTD

3M

6M

1YR

3YR

5YR

10YR

15YR

Inception

Fund

4.9

32.0

16.6

25.0

48.3

7.9

10.8

8.7

3.1

3.9

S&P/TSX Global Gold TR CAD

1.7

31.7

16.9

28.1

49.0

14.3

11.5

9.8

2.0

4.0

NINEPOINT GOLD BULLION FUND - COMPOUNDED RETURNS¹ AS OF SEPTEMBER 30, 2024 (SERIES F NPP226) | INCEPTION DATE: MARCH 17, 2009

MTD

YTD

3M

6M

1YR

3YR

5YR

10YR

15YR

Inception

Fund

5.5

29.5

11.6

17.4

40.7

16.0

11.8

9.2

7.3

6.6

Gold Spot (CAD)

5.6

30.3

11.9

18.0

41.9

17.0

12.8

10.2

8.3

7.5

NINEPOINT SILVER BULLION FUND - COMPOUNDED RETURNS¹ AS OF SEPTEMBER 30, 2024 (SERIES F NPP326) | INCEPTION DATE: MAY 9, 2011

MTD

YTD

3M

6M

1YR

3YR

5YR

10YR

Inception

Fund

8.1

32.2

5.3

23.7

37.9

12.9

11.6

6.4

-0.9

Silver Spot (CAD)

8.3

33.7

5.7

24.6

39.9

14.5

13.4

8.3

1.0

NINEPOINT SILVER EQUITIES FUND - COMPOUNDED RETURNS¹ AS OF SEPTEMBER 30, 2024 (SERIES F NPP866) | INCEPTION DATE: FEBRUARY 28, 2012

MTD

YTD

3M

6M

1YR

3YR

5YR

10YR

Inception

Fund

7.8

28.2

11.4

26.1

45.9

-1.5

6.8

5.2

-1.3

MSCI ACWI Select Silver Miner IMI NR USD (CAD)

7.3

32.8

13.8

31.1

54.8

5.5

8.7

6.3

-1.6

Historical Commentary

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  • Commentary
    June 2024
    Ninepoint Gold and Precious Minerals Strategy
    Gold and silver continued their torrid advance through the second quarter of this year. At the end of Q2, gold and silver bullion had gained 12.8% and 22.5%, respectively.
    Gold & Precious Minerals
    Equities
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All Funds
  • NPP300
    (Series F)
    Mutual Funds Sector Equity
    $78.12 -$0.20 (-0.26%)
    As at 10/25/2024
    Growth of $10,000 Invested as at 9/30/2024
    Performance as at 9/30/2024
    1 Year
    48.33%
    3 Year
    7.89%
    5 Year
    10.84%
    10 Year
    8.67%
    Incept.1
    3.88%
    1 Inception Date 10/12/2004
    Go To Fund

    All returns and fund details are a) based on Series F shares; b) net of fees; c) annualized if period is greater than one year; d) as at 9/30/2024. Top ten holdings, sector allocation and geographic allocation as at 9/30/2024. Top ten holdings based on % of net asset value. Sector allocation based on % of net asset value. Geographic allocation based on % of net asset value and excludes cash. Numbers may not add up due to rounding. Cash and cash equivalents include non-portfolio assets and/or liabilities.

    The rate of return is used only to illustrate the effects of the compound growth rate and is not intended to reflect future values of the investment fund or returns on investment in the investment fund.

    The Fund is generally exposed to the following risks: Borrowing risk; Commodity risk; Concentration risk; Currency risk; Cybersecurity risk; Derivatives risk; Exchange traded funds risk; Foreign investment risk; Inflation risk; Leverage risk; Liquidity risk; Market risk; Performance fee risk; Securities lending, repurchase and reverse repurchase transactions risk; Series risk; Short selling risk; Small capitalization natural resource company risk; Specific issuer risk; Sub-adviser risk; Tax risk; Uninsured losses risk.

    Ninepoint Partners LP is the investment manager to a number of funds (collectively, the “Funds”). Commissions, trailing commissions, management fees, performance fees (if any), and other expenses all may be associated with investing in the Funds. Please read the prospectus carefully before investing. The indicated rates of return for series F units of the Funds for the period ended 9/30/2024 are based on the historical annual compounded total returns including changes in unit value and reinvestment of all distributions or dividends and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. This communication does not constitute an offer to sell or solicitation to purchase securities of the Funds.

    The information contained herein does not constitute an offer or solicitation by anyone in the United States or in any other jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation. Prospective investors who are not resident in Canada should contact their financial advisor to determine whether securities of the Fund may be lawfully sold in their jurisdiction.

    Ninepoint Partners LP: Toll Free: 1.866.299.9906. Dealer Services: CIBC Mellon GSSC Record Keeping Services: Toll Free: 1.877.358.0540

  • NPP226
    (Series F)
    Mutual Funds Bullion
    $29.04 $0.21 (0.73%)
    As at 10/25/2024
    Growth of $10,000 Invested as at 9/30/2024
    Performance as at 9/30/2024
    1 Year
    40.70%
    3 Year
    15.95%
    5 Year
    11.81%
    10 Year
    9.17%
    Incept.1
    6.65%
    1 Inception Date 3/18/2009
    Go To Fund

    All returns and fund details are a) based on Series F shares; b) net of fees; c) annualized if period is greater than one year; d) as at 9/30/2024. Top ten holdings, sector allocation and geographic allocation as at 9/30/2024. Top ten holdings based on % of net asset value. Sector allocation based on % of net asset value. Geographic allocation based on % of net asset value and excludes cash. Numbers may not add up due to rounding. Cash and cash equivalents include non-portfolio assets and/or liabilities.

    The rate of return is used only to illustrate the effects of the compound growth rate and is not intended to reflect future values of the investment fund or returns on investment in the investment fund.

    The Fund is generally exposed to the following risks: Commodity risk; Concentration risk; Credit risk; Currency risk; Cybersecurity risk; Derivatives risk; Inflation risk; Interest rate risk; Market risk; Series risk; Sub-adviser risk; Tax risk; Uninsured losses risk.

    Ninepoint Partners LP is the investment manager to a number of funds (collectively, the “Funds”). Commissions, trailing commissions, management fees, performance fees (if any), and other expenses all may be associated with investing in the Funds. Please read the prospectus carefully before investing. The indicated rates of return for series F units of the Funds for the period ended 9/30/2024 are based on the historical annual compounded total returns including changes in unit value and reinvestment of all distributions or dividends and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. This communication does not constitute an offer to sell or solicitation to purchase securities of the Funds.

    The information contained herein does not constitute an offer or solicitation by anyone in the United States or in any other jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation. Prospective investors who are not resident in Canada should contact their financial advisor to determine whether securities of the Fund may be lawfully sold in their jurisdiction.

    Ninepoint Partners LP: Toll Free: 1.866.299.9906. Dealer Services: CIBC Mellon GSSC Record Keeping Services: Toll Free: 1.877.358.0540

  • NPP326
    (Series F)
    Mutual Funds Bullion
    $9.85 $0.04 (0.42%)
    As at 10/25/2024
    Growth of $10,000 Invested as at 9/30/2024
    Performance as at 9/30/2024
    1 Year
    37.92%
    3 Year
    12.86%
    5 Year
    11.63%
    10 Year
    6.35%
    Incept.1
    -0.89%
    1 Inception Date 5/9/2011
    Go To Fund

    All returns and fund details are a) based on Series F shares; b) net of fees; c) annualized if period is greater than one year; d) as at 9/30/2024. Top ten holdings, sector allocation and geographic allocation as at 9/30/2024. Top ten holdings based on % of net asset value. Sector allocation based on % of net asset value. Geographic allocation based on % of net asset value and excludes cash. Numbers may not add up due to rounding. Cash and cash equivalents include non-portfolio assets and/or liabilities.

    The rate of return is used only to illustrate the effects of the compound growth rate and is not intended to reflect future values of the investment fund or returns on investment in the investment fund.

    The Fund is generally exposed to the following risks: Commodity risk; Concentration risk; Credit risk; Currency risk; Cybersecurity risk; Derivatives risk; Inflation risk; Interest rate risk; Market risk; Series risk; Sub-adviser risk; Substantial securityholder risk; Tax risk; Uninsured losses risk.

    Ninepoint Partners LP is the investment manager to a number of funds (collectively, the “Funds”). Commissions, trailing commissions, management fees, performance fees (if any), and other expenses all may be associated with investing in the Funds. Please read the prospectus carefully before investing. The indicated rates of return for series F units of the Funds for the period ended 9/30/2024 are based on the historical annual compounded total returns including changes in unit value and reinvestment of all distributions or dividends and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. This communication does not constitute an offer to sell or solicitation to purchase securities of the Funds.

    The information contained herein does not constitute an offer or solicitation by anyone in the United States or in any other jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation. Prospective investors who are not resident in Canada should contact their financial advisor to determine whether securities of the Fund may be lawfully sold in their jurisdiction.

    Ninepoint Partners LP: Toll Free: 1.866.299.9906. Dealer Services: CIBC Mellon GSSC Record Keeping Services: Toll Free: 1.877.358.0540

All Ninepoint Gold & Precious Minerals Fund returns and fund details are a) based on Series F units; b) net of fees; c) annualized if period is greater than one year; d) as at 9/30/2024. The index is 100% S&P/TSX Global Gold Total Return Index and is computed by Ninepoint Partners LP based on publicly available index information. All Ninepoint Gold Bullion Fund returns and fund details are a) based on Series F units; b) net of fees; c) annualized if period is greater than one year; d) as at 9/30/2024. The index is 100% Global Spot (CAD) Index and is computed by Ninepoint Partners LP based on publicly available index information. All Ninepoint Silver Bullion Fund returns and fund details are a) based on Series F units; b) net of fees; c) annualized if period is greater than one year; d) as at 9/30/2024. The index is 100% Silver Spot (CAD) Index and is computed by Ninepoint Partners LP based on publicly available index information. All Ninepoint Silver Equities Fund returns and fund details are a) based on Series F units; b) net of fees; c) annualized if period is greater than one year; d) as at 9/30/2024. The index is 100% MSCI Silver Select (CAD) Index and is computed by Ninepoint Partners LP based on publicly available index information.

The risks associated with investing in a Fund depend on the securities and assets in which the Fund invests, based upon the Fund’s particular objectives. There is no assurance that any Fund will achieve its investment objective, and its net asset value, yield and investment return will fluctuate from time to time with market conditions. There is no guarantee that the full amount of your original investment in a Fund will be returned to you. The Funds are not insured by the Canada Deposit Insurance Corporation or any other government deposit insurer. Please read a Fund’s prospectus or offering memorandum before investing. 

Ninepoint Partners LP is the investment manager to the Ninepoint Funds (collectively, the “Funds”). Commissions, trailing commissions, management fees, performance fees (if any), other charges and expenses all may be associated with mutual fund investments. Please read the prospectus carefully before investing. The indicated rate of return for series F units of the Fund for the period ended 9/30/2024 is based on the historical annual compounded total return including changes in unit value and reinvestment of all distributions and does not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The information contained herein does not constitute an offer or solicitation by anyone in the United States or in any other jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation. Prospective investors who are not resident in Canada should contact their financial advisor to determine whether securities of the Fund may be lawfully sold in their jurisdiction. 

The opinions, estimates and projections (“information”) contained within this report are solely those of Ninepoint Partners LP and are subject to change without notice. Ninepoint Partners makes every effort to ensure that the information has been derived from sources believed to be reliable and accurate. However, Ninepoint Partners assumes no responsibility for any losses or damages, whether direct or indirect, which arise out of the use of this information. Ninepoint Partners is not under any obligation to update or keep current the information contained herein. The information should not be regarded by recipients as a substitute for the exercise of their own judgment. Please contact your own personal advisor on your particular circumstances. Views expressed regarding a particular company, security, industry or market sector should not be considered an indication of trading intent of any investment funds managed by Ninepoint Partners. Any reference to a particular company is for illustrative purposes only and should not be considered as investment advice or a recommendation to buy or sell nor should it be considered as an indication of how the portfolio of any investment fund managed by Ninepoint Partners is or will be invested. Ninepoint Partners LP and/or its affiliates may collectively beneficially own/control 1% or more of any class of the equity securities of the issuers mentioned in this report. Ninepoint Partners LP and/or its affiliates may hold short positions in any class of the equity securities of the issuers mentioned in this report. During the preceding 12 months, Ninepoint Partners LP and/or its affiliates may have received remuneration other than normal course investment advisory or trade execution services from the issuers mentioned in this report. 

Views expressed regarding a particular company, security, industry or market sector should not be considered an indication of trading intent of any investment funds managed by Ninepoint Partners LP. These views are not to be considered as investment advice nor should they be considered a recommendation to buy or sell. 

Ninepoint Partners LP: Toll Free: 1.866.299.9906. DEALER SERVICES: CIBC Mellon GSSC Record Keeping Services: Toll Free: 1.877.358.0540