Why Jr. Gold Miners Hit New Lows, Lost Most In Feb.


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Junior gold miner stocks dug their way to historic lows in February, cementing their place in stock market infamy as the month's biggest ETF loser.

Market Vectors Junior Gold Miners ETF ( GDXJ ) imploded 16% in February, its fifth straight monthly drop. It trades deeply below its 50- and 200-day moving averages, which indicates a strong downtrend.

It has a paltry IBD Relative Strength Rating of 4 and an E Accumulation/Distribution Rating, the lowest possible on an A-to-E scale. It's sunk 47% the past 12 months.

A story on the top performing ETFs in February can be seen at investors.com at http://news.investors.com/investing/etf.htm.

"Investors have become risk averse, and juniors are the most risky investments in the sector, if not in the world," Paul van Eeden, president of Cranberry Capital, a private Canadian holding company, said in an email.

Junior gold miners have an insatiable need for money, which has been hard to come by, to support exploration and other projects.

"The juniors are running out of capital and are facing imminent extinction, hence their poor price performance," van Eeden wrote. "Roughly half of all the companies listed on the TSX Venture Exchange (in Canada) are trading below $0.10 and have less than $100,000 in the bank."

Since it peaked in December 2010, GDXJ has lagged its large-cap peer, theMarket Vectors Gold Miners ETF ( GDX ), by a wide margin. GDXJ has crashed 65% from its multiyear high.

GDX fell 10% in February to a 3-1/2-year low. It plunged 35% the past year. GDX peaked in September 2011 and has tumbled 44% from its multiyear peak.

SPDR Gold Shares ( GLD ), tracking a 10th of an ounce of the yellow metal, melted 5% in February. After five straight months of losses, it's fallen 12% the past 12 months. Gold futures prices ended February down 4% at $1,604.10 an ounce, a six-month low. Gold prices have melted 10% from their 52-week high of $1,791 an ounce in October.

GDXJ, GDX and GLD all severely lagged the global stock market the past month and 12 months.The SPDR S&P 500 ( SPY ) added 1% in February and 10% the past year.

IShares MSCI EAFE Index ( EFA ), tracking developed foreign markets, lost 1% in February while gaining 5% the past year;iShares MSCI Emerging Markets Index (EEM) gave back about 2% for the month and slipped 3% the past year.

Promising, yet underfunded, mining projects may been able to get financing when bullion prices improve, says Terry Sacka, chief strategist at Cornerstone Asset Metals in Jupiter, Fla.

"Within the junior (gold mining) market, a lot of investment money came in at the height of the last bull run," Sacka wrote in an email. "Unfortunately, some companies fell well short on delivering results. Mining has many facets, and startups get caught in production pitfalls. So the market is consolidating.

"I think this is an extremely healthy consolidation, which bodes well for a substantial run the next time out," Sacka added.

The Prospectors & Developers Association of Canada's annual mining convention in Toronto next week may renew institutional investor interest in junior miners, says Paul Zimnisky, CEO of PureFunds in Madison, N.J.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing ETFs
Referenced Stocks: EFA , GDX , GDXJ , GLD , SPY

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