Why Gold Prices Shine As Gold Miners ETFs Lose Luster
Gold prices regained their shine Wednesday while gold miner ETFs lost their luster on safe-haven buying in the bullion in the face of rising fears in the stock market.
Spot gold prices added 0.10% to $1,727.70 an ounce.SPDR Gold Shares ( GLD ), tracking a 10th of an ounce of bullion, rose 0.04% to 167.16. It's consolidating below its 50-day moving average. But it has pulled back just 3% from its 52-week average, which is considered normal in an uptrend.
Market Vectors Gold Miners ETF ( GDX ) dropped 4.56% to 47.22. It closed below the key 200-day moving average for the first time in two months, marking a very bearish development. It's corrected 22% from its 52-week high, which is traditionally considered a bear market.AngloGold Ashanti ( AU ),Compania de Minas Buenaventura ( BVN ) andRandgold Resources ( GOLD ) fronted GDX's sell-off, losing 4.64% to 6.69%.
Market Vectors Junior Gold Miners ETF (GDXJ) skidded 4.96% to 22.08. It also broke below key price support at its 200-day line. It's fallen 29% from its 52-week high, which shows severe weakness.
"The relationship of gold miners to gold and the correlations are surprisingly low," said Tim Dyer, vice president of Sage Capital Advisors in La Jolla, Calif., with $150 million in assets under management. Fears of the fiscal cliff are driving gold mining stocks down the same path as the stock market, while gold bullion is a hard asset that investors believe can hold its value during the foreseen crisis, Dyer explains.
Peru-based Buenaventura and other Latin American miners' earnings are eroding from rising labor costs, energy prices and equipment such as steel balls, says Juan Carlos Delgado, an analyst at LarrainVial, an equity research firm based in Santiago, Chile.
Buenaventura's third-quarter earnings fell 11% from a year earlier to 73 cents a share, while sales fell 5% to $411.9 million. Earnings have trended south the past four quarters, while sales were mostly flat. Falling copper and silver prices also hurt sales. Its shares have been trending lower for two years.
Meanwhile, violent labor strikes at South African mines have robbed investor confidence even as mines reopen. AngloGold Ashanti reported Wednesday that its Mponeng mine resumed operations following union negotiations after being closed for a week.
AngloGold's third-quarter earnings plunged 60% to 46 cents a share, while sales sank 11%. Its shares have been trending lower for a year and a half and are trading near a 52-week low of 30.70.
Contrarian investors like Peter Spina, president of Goldseek.com, say gold miners now present a chance to see big gains with little risk.
"Although I am aggressively starting to accumulate here, I would not be surprised to see another 5% (drop in the gold miners) index," said Spina. "Gold could briefly still dip below $1,700 (an ounce), but the upside prospects are starting to grow as the markets understand the temporary resolution to the fiscal cliff will be more money printing."
Federal Reserve Vice Chair Janet Yellen said Tuesday that short-term interest rates may need to be kept near zero until early 2016, a half year longer than expected. Low interest rates lowers the opportunity costs of investing in gold and deters investors from saving money in risk-free bonds.