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Will the Rally in Gold ETFs Continue?

As the ECB officially ends QE, these ETFs may see smooth trading ahead.

Gold is trading around its five-month high. The precious metal hit a five-month high last week, fueled by easing signs of rate hikes from the Fed. Further, weaker jobs data has helped the precious metal to remain steady at its five-month peak. Gold saw an increase of more than 2% last week—marking its best performance since the week of Mar 23.  Gold tends to rise during receding rate hike expectations because lower yields keep the opportunity cost of holding the non-yielding bullion low (read: 3 Sector ETFs to Bet On Despite Soft November Jobs Data). 

 U.S. nonfarm payrolls increased by 155,000 last month, below the economists median forecast of 200,000 jobs. Alongside weaker job data, the jobless claims fell less than expected last week (as of Dec 6), pointing to some hiccups in the economy.

Per INTL FCStone analyst Edward Meir, a number of tailwinds are in favor of the precious metal moving significantly higher in December. These include falling U.S. interest rates, a declining or at least stalling dollar and wobbly U.S. markets.

Some policy makers have used a cautious tone with regard to the economic outlook, possibly flagging a turning point in the monetary policy stance. Per Tai Wong, head of metals trading at BMO, a soft employment report reinforces the narrative that markets have seen the highs of employment. According to Wong, December rate hike is done but anything in 2019 is up in the air.

The slowdown in global markets is also favorable for the non-yielding bullion. Uncertainty surrounding trade talks and the recent high-profile arrest of the senior official of Huawei have hit global markets.

The Fed is likely to hike rates in its next meet scheduled for Dec 18-19. However, the recent wild swings in Wall Street could keep the central bank away from its previously taken hawkish stance. This in turn will lead to a slide in demand for the greenback and boost gold prices.

In October, IMF had cut the 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. Therefore, the ongoing volatility lends more support to gold as a safe haven. This in turn could result in more profits for gold miners.

Against this backdrop, we highlight the following gold mining ETFs in detail. These ETFs have been performing strongly over the past four weeks (as of Dec 7) (see: all Materials ETFs here):

VanEck Vectors Gold Miners ETF GDX

The fund tracks the NYSE Arca Gold Miners Index. It comprises 48 holdings with Newmont Mining Corp NEM (10.9%) occupying the top spot. The fund’s AUM is $9.5 billion and expense ratio is 0.53%. It has returned 6.1% over the past four weeks (read: ETFs That Tend To Win & Lose When Rates Rise).

VanEck Vectors Junior Gold Miners ETF GDXJ

The fund tracks the MVIS Global Junior Gold Miners Index. It comprises 70 holdings with AngloGold Ashanti Ltd AU being the top holding with 6.9% share. The fund’s AUM is $4.1 billion and expense ratio is 0.54%. %. It has returned 3.4% over the past four weeks.

iShares MSCI Global Gold Miners ETF RING

The fund tracks the MSCI ACWI Select Gold Miners Investable Market Index. There are 37 holdings in the pool of fund with Newmont Mining Corp occupying the top spot with 14.9% weight. The fund’s AUM is $184.6 million and expense ratio is 0.39%. It has returned 7% over the past four weeks.

Sprott Gold Miners ETF SGDM

The fund tracks the Sprott Zacks Gold Miners Index. There are 25 holdings in the basket and Kirkland Lake Gold Ltd KL (15.3%) holds the top position. The fund’s AUM is $133.1 million and expense ratio is 0.57%. It has returned 5.6% over the past four weeks.

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ISHARS-M GL GLD (RING): ETF Research Reports
 
VANECK-JR GOLD (GDXJ): ETF Research Reports
 
SPROTT-GOLD MNR (SGDM): ETF Research Reports
 
VANECK-GOLD MNR (GDX): ETF Research Reports
 
AngloGold Ashanti Limited (AU) : Free Stock Analysis Report
 
Newmont Mining Corporation (NEM) : Free Stock Analysis Report
 
Kirkland Lake Gold Ltd. (KL) : Free Stock Analysis Report
 
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