Gold Rally Ignites Miners ETFs
The SPDR Gold Shares (GLD) is up nearly 3% over the past week and bullion’s recent rally is bring gold miners exchange traded funds along for the ride.
Though Thursday’s gains are somewhat modest, the Market Vectors Gold Miners ETF (GDX) , the largest and most heavily traded gold miners ETF, is higher by 5.4% over the past week. GDX’s small-cap counterpart, the Market Vectors Junior Gold Miners ETF (GDXJ) , is higher by 6.5% over the same period.
GDX can be found flirting with its 200-day moving average, a level it has not closed above since January. Though GDXJ needs to gain 8.2% to get back to its 200-day line, there are encouraging technical signs for that ETF as well . GDXJ’s recent bullishness has the ETF breaking out of downtrend that dates back to 2014, according to Chris Kimble of Kimble Charting Solutions.
Other gold miners ETFs are getting in on the act as well. For example, the Sprott Gold Miners ETF (SGDM) , the first factor-based gold miners ETF, is higher by 5% over the past week. SGDM’s newly minted small-cap equivalent, the Sprott Junior Gold Miners ETF (SGDJ) , has surged 7.5% over that period.
SGDM, which is just 10 months, already has nearly $189 million in assets under management. The ETF tracks the Sprott Zacks Gold Miners Index, which seeks to emphasize gold stocks with the highest quarterly revenue growth measured on a year-over-year basis and stronger relative balance sheets as measured by long-term debt to equity,” according to Sprott. [New Miners ETF Debuts]
SGDJ, which employs a similar smart beta methodology, debuted at the end of March and now has over $17 million in assets. Still, there is evidence to suggest investors need some convincing before returning to gold miners ETFs.
Since the start of this month, GDX and GDXJ have lost $88 million in assets combined, suggesting investors have been caught off guard by gold’s rally just as they were unprepared for the recent surge by silver ETFs. [Silver Surge Surprises Investors]
Still, there are encouraging signs for the miners, including dwindling levels of hedging activity.
“Low levels of interest in hedging were illustrated by net hedging of just 5t during the first quarter. Shareholders remain unreceptive towards the activity and we expect supply from this source to stay relatively low (certainly compared with historical levels) over 2015 as a whole,” according to the World Gold Council. “The outstanding global hedge book currently hovers around 200t, up from below 100t at the end of 2013. A number of producers initiated small positions in 2014, but were eclipsed by both Polyus Gold’s hedge of around 88t of production and Fresnillo’s roughly 47t hedge in the closing months of the year. Deliveries into these positions will eat into the outstanding hedge book, but spread out over the next three to- four years the quarterly impact will be minor.”
Miners hedge production to lock in current prices for future output and the lack of recent hedging could be a sign that the companies extracting gold from the earth do not expect the yellow metal to fall much further. [This ETF is Ready to Rally]
Market Vectors Gold Miners ETF
Tom Lydon’s clients own shares of GLD.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
