Gold Miners ETF Rally Has Room to Run

The VanEck Vectors Gold Miners ETF (GDXJ) , the second-largest exchange traded fund tracking gold miners equities, is lower by 3% over the past week as some of the air has come out of the gold trade, but some market observers believe small-cap miners still offer significant upside potential. The VanEck Vectors Gold Miners ETF (GDX) is the largest gold miners ETF. GDX is comprised of global gold miners, with a notable tilt toward Canadian and U.S. mining companies. Nevertheless, gold assets may have further room to rise if the U.S. dollar and real bond yields continue to slump. “If one were to look at the HUI or GDM (parent index of GDX) it would show the gold stocks are currently behind the rebound that began in the fourth quarters of 2000 and 2008. Data from the BGMI implies the rebound in gold stocks is ahead of schedule. In a broader sense, the BGMI certainly has plenty of room to run as many of its bull markets have achieved 7-fold returns,” according to ETF Daily News. Gold has enjoyed greater demand in a low interest-rate environment as the hard asset becomes more attractive to investors compared to yield-bearing assets. However, traders lose interest in gold when rates rise since the bullion does not produce a yield. The $4.2 billion GDXJ tracks the MVIS Global Junior Gold Miners Index, “which is intended to track the overall performance of small-capitalization companies that are involved primarily in the mining for gold and/or silver,” according to VanEck. The ETF holds 75 stocks. “If Gold breaks above major resistance around $1375/oz, then the juniors and large gold stocks could realize that upside potential over the next 18 months,” according to ETF Daily News. “Although the fledgling correction in precious metals could continue and expand, the broader risk to reward is skewed to the upside. Therefore, we want to accumulate the best opportunities in the juniors on weakness.” Related: Demand Trends Great for Gold ETFs Investors have added about $19.5 million to GDXJ in the third quarter. Popular leveraged gold miners ETFs include the Direxion Daily Junior Gold Miners Index Bull 3x Shares (JNUG) , the triple-leveraged answer to the popular GDXJ. The Direxion Daily Gold Miners Bull 3X Shares (NUGT) is JNUG’s large-cap counterpart. For more information on the gold market, visit our gold category. Read more on ETFtrends.com