It is not a secret that shares of gold miner ETFs have performed
disappointingly relative to gold futures. And it is also not a
secret that this scenario has played out for a long enough time
calling a bottom in gold miners has been
However, the prevailing bull case for gold miners says signs of
life will soon emerge. In a research note, S&P Capital IQ said
it remains positive on gold's outlook for this year and 2013.
S&P Capital IQ provided a number of reasons for its bullish
outlook on the yellow metal.
"First, given that the Federal Reserve is committed to keeping
short-term interest rates at near zero through 2014, we see no
opportunity cost for buying and holding gold anytime soon," S&P
said in the note. "Second, despite higher gold prices, global mine
production has been stagnant for over a decade. According to data
compiled by Gold Fields Minerals Service, a U.K.-based metals
consulting firm and publisher, global mine output in 2011 totaled
2,809 tons, up eight percent from 2,602 tons in 1999. We believe
production will remain stagnant for the next several years, as old
mines are becoming depleted and are not being replaced to the
extent needed to significantly lift output."
S&P also cited volatility among major global currencies and
elevated "concerns over solvency of international sovereign debt."
The research provider added, "In our view, the threat of debt
defaults increases the appeal of gold as a safe haven asset."
In addition, rising money supply in the U.S. could be a catalyst
to drive gold higher this year, according to S&P.
In terms of individual gold miners, S&P has a five-star
rating on Barrick Gold (NYSE:
) and four-star ratings on Newmont Mining (NYSE:
) and Randgold Resources (NASDAQ:
Those three stocks combine for about 30 percent of Market
Vectors Gold Miners ETF (NYSE:
). With almost $8.1 billion in assets under management, GDX is the
largest ETF tracking gold mining equities. GDX has struggled this
year, falling almost 15 percent even as ETFs backed by physical
gold have risen. The SPDR Gold shares (NYSE: ) and the iShares Gold
Trust (NYSE: ), the two largest gold ETFs, each rose about three
Small-cap gold miners have performed even worse than their
large-cap counterparts year-to-date. During this period, the Market
Vectors Junior Gold Miners ETF (NYSE: ) has fallen almost 20
percent. Unlike some of its peers, GDXJ has some mid-cap exposure
and allocations to silver miners. The fund has nearly $2.3 billion
in AUM. S&P did not include ratings for either gold miner ETF
in the research note.
For more on mining ETFs, click .
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