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Gold Dips to One-Month Low: ETFs in Focus

Zacks Equity Research
A strengthening greenback puts gold out of favor, bringing related ETFs in focus.

Gold prices fell in four consecutive sessions and plunged in seven out of the last eight sessions. Recently, it fell to its lowest level since Oct 11. The commodity is down nearly 11% from the high touched in April when investors flocked to gold amid escalating trade war tensions. December gold fell 1.4% (Nov 9), 0.4% (Nov 12) and 0.2% (Nov 13), seeing the lowest finish for the most active contract since Oct 10. Per Reuter’s technical analyst Wang Tao, spot gold is expected to test a support at $1201 with a likely chance of breaking this level and falling to $1192 (see: all Materials ETFs).

Rising political turbulence in the European Union and threats of global economic slowdown have led to strengthening of U.S. dollar, which recently touched a 16-month high. This makes dollar-denominated commodities expensive thus keeping investors at bay. Additionally, strengthening of greenback leads to rising bond yields, keeping the non-yielding bullion out of favor.

Per TD Securities, gold analysts are now focusing more on the U.S. dollar and global macro data releases, supposed to be the two biggest triggers impacting gold in the short term. Recently, hedge fund and money managers cut their net short position in gold by 8,136 contracts to 37,486 contracts (read: Fixed Income & U.S. Equity ETFs Shine in Mid-Term Week).

The fall in gold prices began post the Fed’s decision to keep rates unchanged in their latest Federal Open Market Committee (FOMC) meeting, ending on Nov 8. Fed is tightening monetary policy to keep inflation in check. Another rate hike of a quarter basis point has already being priced in by the markets with  a couple more expected by mid-2019 (read: ETFs That Tend To Win & Lose When Rates Rise).

Fed is sticking to its gradual rate hike measure despite the recent sell-off in October. This is because the U.S. economy has been performing well this year with GDP growth rate averaging 3.3% in the first three quarters. The labor market is robust with unemployment rate at a near five-decade low of 3.7%. Over the year, wages have advanced 3.1% or 83 cents, increasing more than 3% for the first time since mid 2009. About 250,000 jobs were added in the month of October, easily surpassing the consensus estimate of 193,000 (read: Fed Meet Signals December Rate Hike: ETFs That Gained).

IMF recently cut global growth forecast by 0.2 percentage points for this year and the next owing to trade policy concerns and import tariffs, which are affecting commerce. Meanwhile, emerging markets are struggling due to tight financial condition and sizable outflows. So, gold may still act as safe haven to shield against market volatility. This brings to focus gold mining ETFs that have suffered lately (as of Nov 12):

ETFs in Focus

VanEck Vectors Gold Miners ETF GDX

The fund tracks NYSE Arca Gold Miners Index. It comprises 49 holdings with Newmont Mining Corp (NEM) (10.9%) occupying the top spot. The fund’s AUM is $8.7 billion and expense ratio is 0.53%. It has lost 4.9% over the past week.

VanEck Vectors Junior Gold Miners ETF GDXJ

The fund tracks MVIS Global Junior Gold Miners Index. It comprises 71 holdings with AngloGold Ashanti Ltd (AU) being the top holding with 6.6% share. The fund’s AUM is $4.1 billion and expense ratio is 0.54%. It has lost 6.1% over the past week.

iShares MSCI Global Gold Miners ETF RING

The fund tracks the MSCI ACWI Select Gold Miners Investable Market Index. There are 36 holdings in the pool of fund with Newmont Mining Corp (NEM) occupying the top spot with 15.6% weight. The fund’s AUM is $172.8 million and expense ratio is 0.39%. It has lost 6% over the past week.

Sprott Gold Miners ETF SGDM

The fund tracks the Sprott Zacks Gold Miners Index. There are 27 holdings in the basket and Kirkland Lake Gold Ltd (KL) (14.9%) holds the top position. The fund’s AUM is $127.8 million and expense ratio is 0.57%. It has lost 6.6% over the past week.

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ISHARS-M GL GLD (RING): ETF Research Reports
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VANECK-JR GOLD (GDXJ): ETF Research Reports
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