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Why Gold Mining ETFs Are Rallying

Sanghamitra Saha
Ross Stores (ROST) has an impressive earnings surprise history and currently possesses the right combination of the two key ingredients for a likely beat in its next quarterly report.

Trade war and increasing inflationary expectations are fears that investors are stricken with at the moment. While this is a headwind for the broader market generally, a certain section of the equity universe – gold mining ones – is expected to stay steady.

In the last one month (as of Apr 11, 2018), which was fraught with trade and tech risks, gold bullion ETF SPDR Gold Shares GLD is up 0.6% compared with 2.7% losses in SPDR S&P 500 ETF SPY. And gold mining ETF VanEck Vectors Gold Miners ETF GDX, which normally act as a leveraged play of the underlying asset, gained about 3% during the same time frame.

Notably, several gold mining ETFs are trading at a one-month high currently. GDX jumped 2.2% on Apr 11 while triple-leveraged small-cap gold mining fund Direxion Daily Junior Gold Miners Bull 3x ETF JNUG jumped about 7%.

What’s Behind the Jump?

Trade War Fear with China

By now the trade tension between China and the United States, which started in March, is known to all. There has been a chain of retaliations in import tariff announcements by both countries. President Donald Trump intended to “protect the technology and intellectual property of American companies and American people” and engrossed itself in a trade war with China.

However, Trump mentioned that the United States is open to discussions with China. President Donald Trump also said in a tweet on Apr 8 that he expects China to reduce trade barriers and not to respond to U.S. taxes. Though tensions are easing, fears remain (read: Trade Tensions or Not, Stay Safe with These ETFs).

Higher Inflationary Expectations

If the tariffs are enacted, it could result in an increase in raw material cost for manufacturers that use these metals. Manufacturers might try to pass on a certain portion of higher material prices to consumers. This in turn will add to inflationary pressures. The latest Fed minutes also suggested that inflation on a 12-month basis would rise in the coming months (read: 3 Top Ranked Sector ETFs to Buy as Fed Hikes Rates).

If these were not enough, U.S. inflation increased at the fastest clip in a year in March. The core consumer price index, which bars volatile food and energy prices, indicated that prices were 2.1% higher in March compared to the same period last year. The data came in higher than February’s reading of 1.8% rise. On a sequential basis, U.S. core consumer prices were up 0.2% in March, matching market expectations.

Gold Glitters Amid Rising Inflation & Higher Volatility

Investors should note that gold is commonly viewed as an inflation-protected asset. So, if the greenback remains low on geopolitical risks, an increase in inflation can favor gold investing. The precious metal is also considered a safe haven asset and hedge against market turmoil.

So as long as trade tensions prevail, gold and related stocks will have wind under their wings.

Against this backdrop, we highlight some outperforming gold mining ETFs (read: 5 ETF Ways to Hedge Your Portfolio Against Volatility).

ETFs in Focus

Direxion Daily Gold Miners Bull 3X ETF NUGT – Up 7% on Apr 11

The fund delivers the three times exposure to the companies involved in mining for gold and silver.

Sprott Junior Gold Miners ETF SGDJ – Up 4.13% on Apr 11

The fund tracks the performance of small-capitalization gold companies whose stocks are listed on major U.S. and Canadian exchanges.

PowerShares Global Gold And Precious Metals Portfolio PSAU – Up 2.41% on Apr 11

The fund measures the overall performance of globally traded securities of the largest and most liquid companies involved in gold and other precious metals.

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GOLD (LONDON P (GLD): ETF Research Reports
SPDR-SP 500 TR (SPY): ETF Research Reports
VANECK-GOLD MNR (GDX): ETF Research Reports
DIR-D GM BL 3X (NUGT): ETF Research Reports
SPROTT-JR GLD M (SGDJ): ETF Research Reports
DIR-DJGMI BL 3X (JNUG): ETF Research Reports
PWRSH-GLBL GOLD (PSAU): ETF Research Reports
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