Gold Miners ETF Flows, Return Go Their Own Ways

ETFtrends.com
May 29, 2014

After a decent start to the year, and in the case of mining exchange traded funds, a spectacular start, gold ETFs have again fallen out of favor.

Supposedly benign inflation, rising risk appetite and tepid demand are among the factors that have pressured gold and bullion-backed ETFs. Comex gold for June delivery closed at $1,258.50 per troy ounce Wednesday, prompting some market observers to speculate that the yellow metal could soon see $1,200 per ounce.

Since the start of the second quarter, the SPDR Gold Shares (GLD) is lower by nearly 2% and has shed $1.1 billion in assets. Investors have also pulled capital from the iShares Gold Trust (IAU) and the ETFS Physical Swiss Gold Shares (SGOL) , among others. [Rising Risk Appetite Plagues Gold ETFs]

The scenario with mining ETFs is noticeably different than it is with physically-backed gold funds. On Wednesday, five of the 10 worst non-leveraged ETFs were precious metals mining funds, but that was not a one-off occurrence.

With Wednesday’s losses, the Market Vectors Gold Miners ETF (GDX) and the Market Vectors Junior Gold Miners ETF (GDXJ) are lower by 7% and 7.6%, respectively since the start of the second quarter. Both ETFs could see their 2014 gains evaporate entirely as soon as Thursday. [2014 Gains Nearly Gone for Mining ETFs]

Although the inflows are not jaw-dropping, investors continue to stick with mining ETFs even as they bailout of physically-backed funds. GDX and GDXJ have pulled in just over $108 million combined since the start of the second quarter.

And it is not just retail investors that are making the mistake of standing by gold miners as GDX, GDXJ and their constituents tumble.

George Soros’ Soros Fund Management LLC boosted its stake in GDX in the first quarter and added to its position in Barrick Gold (ABX) as well. David Einhorn’s Greenlight Capital has held a position in GDX since the ETF last traded in the mid-$40s. [Paulson, Soros Still Love Gold ETFs]

In another sign that investors of all skill levels are stridently bullish on gold miners, they are not cozying up to high-flying inverse, leveraged miners ETFs.

Over the past month, the Direxion Daily Gold Miners Bear 3X Shares (DUST) and the Direxion Daily Junior Gold Miners Index Bear 3X Shares (JDST) have seen redemption activity while the Direxion Daily Gold Miners Bull 3X Shares (NUGT) and the Direxion Daily Junior Gold Miners Index Bear 3X Shares (JNUG) have seen creation activity, according to Direxion data.

That despite the fact that JDST and DUST are Direxion’s two best bearish ETFs this month while NUGT and JNUG are the issuer’s second- and third-worst leveraged bullish plays, respectively.

Direxion Daily Gold Miners Bear 3X Shares

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Tom Lydon’s clients own shares of GLD.