This article was originally published on ETFTrends.com.
With gold prices slumping, mining stocks and the related exchange traded funds are feeling the heat. Over the past month, the VanEck Vectors Gold Miners ETF (NYSEArca: GDX ), the largest exchange traded fund dedicated to gold mining stocks, is off more than 11%.
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.
Small-cap precious metals miners are getting drubbed, too. The small-cap VanEck Vectors Gold Miners ETF (GDXJ) , the second-largest exchange traded fund tracking gold miners equities, is down almost 11.6% over the past month.
“On the sentiment front we should note that Gold’s net speculative position reached 1.5% of open interest. That is the second lowest reading in the past 17 years. Does that mean this is December 2015 or 2001 for Gold?,” reports ETF Daily News.
Gold's Losing Streak
Heading into August, gold had notched four consecutive monthly losses and concerns are mounting regarding the near-term fate of bullion. The strengthening U.S. economy is translating to a stronger dollar, which is often a problem for gold. Gold, like other commodities, is denominated in dollars, meaning it has an inverse relationship to the U.S. currency.
“The precious metals sector is currently extremely oversold and a relief rally is underway. It should last at least a few more weeks and maybe a few months. However, the primary trend is down and there are downside targets that are even lower,” according to ETF Daily News.
The short interest in the gold miner space has reached its highest level in five years. The Federal Reserve is widely expected to maintain a hawkish perspective. However, the Fed and the global economy may now get knocked onto a softer tightening path, which could create an attractive risk/reward into year-end.
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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