Gold miners are under pressure once again after a surprise jump
in U.S. jobs growth and stronger-than-expected 2.8% GDP growth in
the third quarter. These apparently encouraging data points
reignited fears of a monetary stimulus cut from the Fed soon that
would boost the dollar against a basket of major currencies and
dampen safe haven appeal across the board.
This bearish trend is further confirmed by rising worries about
tightening policy in China in order to prevent a flare-up in
property prices and growing inflation, and European Central Bank's
surprising rate cuts (read:
China ETFs Slide on Cash Crunch Fear
Moreover, demand in India, the biggest consumer of gold, remains
soft as government has curbed imports and investors are shifting
their exposure to surging equity markets.
Thanks to this news, gold futures for December delivery have
slumped from about $1,323/oz. at the end of October to the current
level of below $1,280/oz., suggesting a bearish sentiment in the
space. Notably, the yellow metal is heading for its first annual
decline in 13 years.
Investors should note that gold bullion is down nearly 24% in the
year-to-date time frame and might decline further in the coming
days if we see another round of strong economic data (read:
No Respite for Gold ETF Bear Run
Usually, gold miners trade as a leveraged play on underlying
precious metals. This means that when gold prices slump, gold
miners lose even more, as they tend to experience extreme losses
when compared to their bullion cousins.
In such a backdrop, gold miners are certainly being hit hard by
gold bullion's slump, as top gold mining ETFs like
Market Vectors Gold Mining ETF (
Market Vectors Junior Gold Miners ETF (
iShares MSCI Global Gold Miners ETF (
saw loses near double digits in the past 10 trading sessions.
This was a lackluster performance considering that the
ultra-popular SPDR Gold Trust ETF (
) and iShares Gold Trust
) posted losses of nearly 5% over the past 10 days (read:
Gold Mining ETFs Rebound: Can It Last?
Gold Mining ETFs in Focus
With AUM of over $4.6 billion and an average daily volume of more
than 36 million shares,
is the most popular ETF in the gold mining space and tracks the
NYSE Arca Gold Miners Index. Canadian firms account for roughly
three-fifths of the assets while the U.S. (13.2%) and South Africa
(9.3%) round out the top three.
The fund holds 37 stocks in its basket with heavy concentration to
top two Canadian firms -
Barrick Gold (
at 11% each and one U.S. firm -
Newmont Mining (
at nearly 8%. The product charges 52 bps in fees per year from
follows the Market Vectors Global Junior Gold Miners Index, and is
roughly evenly split between small and micro-cap securities,
holding about 71 securities in its portfolio. Once again, Canadian
firms take the lion's share at 59.5%, though Australia (22.1%) and
the U.S. (9.4%), round out the top three (read:
Gold Mining ETF Investing 101
The ETF is also much more spread out than its counterparts, as none
of the securities holds more than 4.51% of total assets. The
product has amassed about $1.3 billion in its asset base and sees
solid trading of nearly 1.1 million shares a day. The ETF has a
0.55% expense ratio.
is the cheapest choice in the gold mining space, charging just
0.39% in fees and expenses. The fund is less popular and less
liquid with AUM of $36.4 million and average daily volume of less
than 78,000 shares. The ETF tracks the MSCI ACWI Select Gold Miners
Investable Market Index and holds 38 securities in its
Similar to GDX, the product is heavily concentrated in the top
three firms - GG, ABX and NEM - which combine to make up for nearly
40% of total assets. Country holdings are also similar, with Canada
as the top country, followed by the U.S. and South Africa.
This is an extremely rough patch for gold mining ETF investors,
with most products losing double digits in the past few sessions.
And given the sluggish outlook for gold, strong U.S. data, surging
dollar and threat of reduced QE, this trend might continue in the
weeks ahead (see:
all the Materials ETFs here
Further, the gold miners' stocks have a relatively long history of
underperformance. Given this, investors should take great caution
when investing in this once safe haven or avoid digging up trouble
with these products for the time being.
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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
ISHARS-M GL GLD (RING): ETF Research Reports
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