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2 Precious Metals Funds to Play a Coming Retreat in the Dollar

Inflation’s bullish impact on precious metals prices has been held back by dollar strength. That could be changing.


It’s no surprise that precious metal investors have been disappointed by gold and silver’s failure to perform well in an inflationary environment. But, as I’ll address later, a number of limiting factors that have held back the performance of metals could be reversing.

Historically, inflation is a significant catalyst for gold and silver, and performance almost always benefits from increases in money supply.

In recent decades, the largest contributors to the money supply have been recessionary responses by central banks (lower rates, higher availability) and war (which tends to bring about uncontrolled deficit spending).

By contrast, dollar strength is in fact the biggest contributor to gold’s weakness this past year, as the U.S. dollar index has embarked on its best showing in over 20 years.

But the dollar’s strength has come at the expense of other nations’ currencies, in turn drastically increasing inflation rates abroad while mitigating the impact of higher consumer prices here at home. However, signs have lately emerged that more than one major country is taking steps to reverse what many see as America “exporting” its inflation problem for others to contend with.


Russia is one such country taking steps to reduce its reliance on the greenback, as Kremlin authorities recently initiated a policy of banning the use of dollars as collateral for transactions with Russia’s largest financial services marketplace, the Moscow Exchange. Financial commentators see the move as a significant step in a growing global trend toward “de-dollarization.”

What’s more, the world’s leading central banks aren’t holding dollars as reserves in the same quantities as in prior years. As Cary Springfield of the International Banker pointed out in a recent commentary, the dollar’s share of global foreign-exchange reserves fell below 59% in last year’s Q4, extending a two-decade decline. A quarter of the shift out of the dollar has gone into the Chinese renminbi, with the rest going into the currencies of smaller countries, according to Springfield.

A big part of the dollar’s global dominance is owing to its use as the official currency used to price commodities, particularly crude oil. The de facto dollar standard has for years conveniently allowed the U.S. to push inflated dollars away from its own shores and into foreign countries, helping to keep domestic inflation contained.

Tellingly, China has drastically reduced its holdings of U.S. Treasury debt (which recently fell under $1 trillion for the first time since 2010), while also embarking on an effort to unload dollars in order to stabilize its own currency. Even Egypt’s government has been issuing debt denominated in China’s currency as an alternative to the higher borrowing costs associated with the U.S. dollar.

And while the dollar reserves of many countries are shrinking, gold reserves are increasing as a nascent shift seems to be underway from using the dollar as a preferred safe haven to that of gold. A World Gold Council (WGC) report found that 80% of the 57 central banks it surveyed plan to increase their holdings of the metal in the coming year.

That said, as the de-dollarization trend accelerates, gold and other precious metals should begin to come into their own as the U.S. finds its ability to export inflation more limited. With a growing number of signs pointing to a weaker dollar in 2023 and beyond, precious metals investing should pay off in a big way in the years ahead.

For investors with a long-term horizon, a passive approach to investing in precious metals is recommended. While outsize gains can be made with an actively managed, stock-oriented portfolio, a highly liquid precious metals ETF or mutual fund works best for most investors. To that end, here are two precious metals funds worth considering.


For exposure to gold, a good one-size-fits-all approach is through the Global Gold Natural Resources and Income Trust (GGN). This is a closed-end fund that invests mainly in the stocks of gold and natural resources (mainly energy) companies with the aim of earning income through a strategy of writing covered call options on the equity securities in its portfolio (it currently sports a yield of 10%). The fund features significant international diversification, with holdings in several countries including the U.S., Canada, the U.K., Australia, France, South Africa and Chile, to name but a few. The fund affords investors an opportunity to benefit from not only a gold bull market but also from strength in other commodities that feed off dollar weakness.

GNN Chart

The ISE Junior Silver Miners ETF (SILJ) is an excellent way to have some exposure to the silver market. The fund tracks a modified market-cap-weighted index of small-cap silver mining and exploration companies (both pure and non-pure-play), providing extra leverage for bull markets in the white metal. Aside from being an inflation hedge, the ETF should also benefit in the coming years from silver’s increasing use in alternate energy applications (including electric car parts and solar panels).

SILJ Chart

For over 20 years, he has worked as a writer, analyst and editor of several market-oriented advisory services and has written several books on technical trading in the stock market, including “Channel Buster: How to Trade the Most Profitable Chart Pattern” and “The Stock Market Cycles.”