This article was originally published on ETFTrends.com.
Gold prices are faltering and that is plaguing exchange traded funds tracking shares of gold miners. On Wednesday, the VanEck Vectors Gold Miners ETF (NYSEArca: GDX ), the largest exchange traded fund dedicated to gold mining stocks, extended a losing streak that has seen the fund lose almost 10% over the past month.
GDX is comprised of global gold miners, with a notable tilt toward Canadian and U.S. mining companies. Stock fundamentals like cost deflation across the mining industry, share valuations below long-term average and rising M&A are all supportive of the miners space as well, but those fundamentals could be glossed over if the dollar strengthens.
The small-cap VanEck Vectors Gold Miners ETF (GDXJ) , the second-largest exchange traded fund tracking gold miners equities, is also in a tailspin, having tumbled more than 9% over the past month.
“An upside or downside break can lead to a market stretching beyond what typically qualifies as overbought or oversold. After Monday’s selloff, the gold stocks are hitting oversold levels but have more to go before reaching true oversold extremes,” reports ETF Daily News.
Troubling Technicals for Gold
Recent declines have GDX and GDXJ residing well into oversold territory and well below key moving averages. For example, GDXJ is about 15% below its 200-day moving average and just 5.4% above its 52-week low.
“Monday’s decline in the gold stocks has moved the sector into oversold territory. Another day or two of a similar decline would likely put the various breadth indicators into extremely oversold territory. Within the context of a significant technical breakdown and a primary downtrend, one should wait for oversold extremes before turning bullish or covering shorts,” according to ETF Daily News.
Inflation could serve as a catalyst for the yellow metal and for gold-related ETFs. By some metrics, the Fed has under-estimated U.S. inflation, which could prove beneficial to gold because the yellow metal is historically a popular inflation fighter.
Traders willing to wager on more declines for gold miners can consider the inverse leveraged Direxion Daily Gold Miners Index Bear 3X Shares (DUST) and the Direxion Daily Junior Gold Miners Index Bear 3X Shares (JDST).
For more information on the gold market, visit our gold category.
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