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Small-Cap Gold Miners ETF Trails Large-Cap Peer


Almost as quickly as gold and gold mining equities shot up last Wednesday after the Federal Reserve said it will not taper its bond-buying program, the gains evaporated. By the time the closing bell sounded Friday, the Market Vectors Gold Miners ETF (GDX) , the largest gold mining ETF by assets, finished with a weekly loss of 1.1%.

GDX’s small-cap equivalent, the Market Vectors Junior Gold Miners ETF (GDXJ) , was far worse with a loss of about 4%. GDXJ’s lagging of its larger cousin came as GDX saw inflows of $1.03 billion for the week ending Thursday September 19, according to Hard Assets Investor.

That made GDX the best asset-gathering ETF, although investors pulled cash from the fund on Friday, leaving GDX with $7.7 billion in assets under management as of September 20, according to Market Vectors data.

Since GDXJ is the small-cap play of the pair, it is not surprising that it sometimes lags GDX. Gold mining stocks are volatile and during periods of stress for the sector, higher beta small-caps often endure more punishment than their large-cap brethren. Over the past month and six months, GDXJ has performed noticeably worse than GDX. [Crunch Time for Gold ETFs Again]

GDXJ is also decoupling on the downside from its two largest country weights, Canada and Australia. Over the past month, the IndexIQ Canada Small-Cap ETF (CNDA) is up more than 2% while the IndexIQ Australia Small-Cap ETF (KROO) is higher by more than 7%. Those countries combine for 80% of GDXJ’s country weight.

GDXJ looking more vulnerable than GDX, which is saying something because if GDX cannot hold support at $25, declines from there could be nasty. Adding to GDXJ’s vulnerability is seasonality. With this being the last full trading week of September, it is worth noting October is usually the worst month in which to be long gold. [Fed-Fueled Gains May be Short-Lived for Gold ETFs]

Compounding GDXJ’s potential October woes is the fact October is historically the worst month of the year for small-cap Russell 2000 Index, which usually loses an average of 1% in the tenth month of the year. After its 9.1% loss on Friday, GDXJ risks returning to its July lows if it cannot stay above $40.

Market Vectors Junior Gold Miners ETF

ETF Trends editorial team contributed to this post.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.