While the gold market whipsaws from day to day thanks to
speculation, the festival season is beginning in India. Festival
season runs from August to November and coincides in part with
monsoon season, the severity of which can have a significant impact
on gold consumption in India, the world's largest gold buyer.
[caption id="attachment_69414" align="alignright" width="300"
caption="A vegetable seller in Sikkim, India"]
Physical demand thus far in 2012 has been muted and some reports
expect it to remain so. Much of the gold market demand -- 60% or
so, is generated in rural farming areas. Monsoon season has been
muted as well, which could spur additional buying if it remains
Gold futures have recovered a bit through July, trading at the
highest levels in a month. Some analysts expect price gains to
continue, possibly to record highs due to expectations of a weaker
rupee. Gold in rupees is up 3% this year, a stark contrast to gold
traded in dollars.
Of the half dozen or so
gold mining ETFs
available, only a few have any significant exposure to
emerging markets. Two of the more commonly traded gold mining
ETFs are the Market Vectors Gold Miners ETF (
) and Junior Gold Miners ETFs (
GDX averages 15 million shares a day and GDXJ nearly 4 million
shares per day. GDX has the majority of its assets in Canada, but
also has a fair amount allocated to two emerging market regions:
Africa (16%) and Latin America (5%). Curiously, its little sibling
GDXJ has very little emerging market exposure, with about 4% in
Latin America and a tiny, barely worth mentioning <1% in
Two other ETFs are leveraged and I won't discuss here. The three
remaining ETFs have the most emerging market exposure. The
Powershares Global Gold and Precious Metals Portfolio (
) has more than 17% of its portfolio in Africa. It also has 3.5% in
Latin America, and 1% in Asia, so its total emerging markets
allocation comes in at just under 22%.
The MSCI Global Gold Miners Fund (
) has a slightly higher total allocation to emerging markets at
about 23%. It breaks down as follows: Africa nearly 14%, Latin
America just under 6%, and Asia a little more than 3%.
The third fund, the Global X Pure Gold Miners ETF (
), has the highest total exposure to emerging markets. It
has 20% allocated to Africa, a little more than 3% to
Asia, and also a little over 3% to Latin America.
I also wrote
article on Indian ETFs
. None of the regional India ETFs have a measurable amount of
exposure to gold miners. And although the mining ETFs do not have
identifiable direct investment in India, India is an important
market for many miners and one which will continue to have an
impact on gold market prices worldwide.
I think that gold and gold mining companies have a bright
future. The daily and weekly gyrations in price obscures the most
likely scenario for gold and gold miners in the future. At the risk
of sounding like a "gold bug", I do think that given the poor
economic outlook in developed and major emerging markets, central
banks will have no choice but to do what they believe will
stimulate growth. These actions usually result in currency
devaluation, driving up the price of commodities.
Slowing US growth, and comments that measures will be taken to
keep the EU together and to get the US economy going, or at least
prevent a recession, disappointed short term traders hoping for
Prices for both the miners and the commodity diving should be
taken as a buying opportunity. Whenever a global economic recovery
actually arrives, gold will not be abandoned. The method of trade
will most likely involve several currencies, not just a dominant
dollar. As such, governments will still see the need to own gold --
and investors will as well.