Investments in gold have seen appalling results this year with
physically backed gold ETFs like the
SPDR Gold Shares
) losing 26% in 2013 and
Market Vectors Gold Miners ETF
) shedding a massive 55% so far. The latter put up with more pain
as it often trades as a leveraged play on gold, raising question on
where this downtrend will stop.
While the Fed's super-easy monetary policy and upbeat economic data
have made equities a darling investment avenue, persistent concerns
about the taper timeline also played its share of role in dulling
the charm of gold investing in most of 2013.
Gold Mining ETF Fate in 2014?
Fed Taper Finally Comes:
Putting an end to almost year-long speculation, the Fed has finally
opted for a modest scale-back in QE in January. Monthly purchases
of both mortgage and Treasury bonds would now be cut down by $5
billion each, leading to a $10 billion reduction in the bond buying
The Fed chairman, Ben Bernanke commented that the bond buying
program will be curtailed in phases in 2014, if improvement in the
labor market moves in accordance with their expectations, and QE
might be fully completed by late 2014 (read:
Fed Tapers Bond Purchases: 3 ETFs in Focus on the
A trimming in the easy monetary policy will likely send the price
of the greenback higher and dampen the safe haven status of the
yellow metal. In fact, after the Fed's announcement of first
withdrawal from the stimulus, GDX slipped 1.56% (on December
While demand for gold is fragile currently, the sector has come up
with record production this year leading to about
in prices. As per Reuters, despite falling prices, gold miners
are binging on volumes to improve revenues in order to spread out
its huge fixed asset base. Analysts are expecting gold mining
output to cross 3,000 tons a year for the first time in 2014. There
is little chance of production cuts before 2015.
While fundamentals are certainly not encouraging, technical
indicators show some signs of hope. The Relative Strength Index for
GDX is presently 44.7 following the threatening taper announcement,
up a bit, but still within the key middle range.
These indicators are actually hovering higher than the low-30's
level seen in early-December. This means although the fund is by no
means overbought, the upturn signifies that investors' faith is
returning to the space, though very slowly.
However, other indicators are still lagging. GDX is currently
lingering around its 52-week low. Its short-term moving average is
well below the long-term average. GDX is also trading pretty much
at the parabolic SAR level, suggesting there isn't much of a signal
from this look (read:
Pain or Gain Ahead for Gold Mining ETFs?
As much of the taper concerns are factored in by now and gold
mining products are hovering at the 5-year low level, we don't
expect much of a downside for these products in the New Year,
though the journey will be pretty rough (see
all the Materials ETFs here
If gold mining ETFs try to turn around at any point next year, they
can only recoup some of the gigantic losses incurred throughout
2013. Further, the production and cost scenario will likely remain
unfavorable for these products next year, indicating a dearth of
positive fundamentals in the space.
Having said that, we believe, investors that have a strong stomach
for risks can consider buying gold mining products. These products
saw heavy sell-offs in the recent past and might offer a good entry
point now on the buy side.
Investors should also note that the selling of gold-related
investments has also been slower of late thus indicating that we
are close to a bottom. The Fed has announced a modest trimming, but
easy money will be very much in the economy (see
A Comprehensive Guide to Gold Mining ETFs
Thus, even if next year proves to be a tough one for gold mining
funds with each measured taper announcement, the year after should
dazzle investors in this in-focus corner of the market.
Want the latest recommendations from Zacks Investment Research?
Today, you can download
7 Best Stocks for the Next 30 Days
Click to get this free report >>
MKT VEC-GOLD MI (GDX): ETF Research Reports
MKT VEC-JR GOLD (GDXJ): ETF Research Reports
SPDR-GOLD TRUST (GLD): ETF Research Reports
ISHARS-GOLD TR (IAU): ETF Research Reports
To read this article on Zacks.com click here.
Want the latest recommendations from Zacks
Investment Research? Today, you can download 7 Best Stocks for the
Next 30 Days. Click to get this free report