Investing in metal mining ETFs has been pretty rough this
year. After a bad stretch in the first half of this year, metal
mining ETFs recovered somewhat thanks to the taper concerns as
well as a sluggish dollar. However, Fed's decision to hold
back tapering of its monthly bond buying program on Sep 18 led to
another slump for the mining ETFs. (Read:
Inside Biotech ETFs--Can the Run continue?
FT-ISE GLBL COP (CU): ETF Research Reports
MKT VEC-GOLD MI (GDX): ETF Research Reports
MKT VEC-JR GOLD (GDXJ): ETF Research Reports
GLBL-X JR MINER (JUNR): ETF Research Reports
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While the 'Taper hold' decision infused fresh life in the equity
market, it beat down precious metals like gold and silver causing
these products to underperform the broader stock market greatly.
The situation is even more depressing for the miners as compared
to their bullion tracking counterparts as most mining companies
tend to be a leveraged play on the prices of underlying metals.
The most popular gold mining ETF,
, has lost 15.7% (as of October 8) since September 18, while the
most popular silver mining ETF
, copper mining ETF
First Trust ISE Global Copper Index
Global X Junior Miners ETF
) respectively lost 18.4%, 8.0% and 11%, suggesting a languishing
trend across the space.
Apart from the issues in the US, a
week-long National Day holiday
in China was also responsible for some declines in mining ETFs in
the past week as China is the major consumer of many metals. As
far as gold is concerned, the largest importer India passed a
bill about two months ago, which stipulates that a fifth of all
imports are to be re-exported. All these factors had a cautious
impact on the metal mining market.
Below is the chart highlighting the extent of loss these mining
ETFs suffered in the last one month period as of October 8, 2013.
Is There Any Hope?
Although a mining rally is losing steam of late thanks to the
completely unanticipated "Taper Hold" that reversed investor
attention towards the stock market, the Fed's cut in GDP outlook
implies that the picture is not as rosy as perceived by most
3 ETF Winners from the 'No Taper' Shocker
This sentiment may provide a little support to the commodity
outlook. Also, the industrial economy seems to be reviving
somewhat across the globe, while the relatively sluggish dollar
is also boosting demand for hard assets.
We expect some funds like copper mining ETFs not to be too
ruthlessly affected, as long as China - the major importer of the
metal - stages a good show. Better economic data is coming out of
Eurozone. Moreover, the peak wedding and festive season is just
around the corner in India which might give an upward thrust to
the demand for gold (read:
Gold Mining ETF Investing 101
Lastly, sooner or later Fed will start tapering its monetary
stimulus package, though it is not final yet, so commodities may
still have some room to run in this weak dollar environment. And
if at all a taper takes place in some time, the imminent
volatility can tag metals especially gold, as a safe haven (read:
Is There Any Hope For Silver Mining Stocks
Given the current bearish scenario, investors might feel like
they have hardly any options in the mining market. But this
bearishness can prove to be a good entry point as the space can
hold up well in future ruling out the near-term concerns.
Hence, mining ETFs might be worth a closer look by some
investors who have a high risk tolerance.
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