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Will Gold Miners ETFs Turn Around in Q4?

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The September U.S. job data released on Friday signaled a sudden halt in the pace of job growth and has dented the chance of an interest rate hike later this month, which could have been the first in nearly a decade. While this ushered gains on several asset classes, gold mining was among the huge beneficiaries.

The metal lost its allure long back thanks to an increased prospect of an interest rates hike this year, a strengthening dollar, muted inflation across the most developed nations and slowdown in key consuming countries like China. Occasional geo-political flare-ups and even a risk-off trade sentiment could not save this safe-haven yellow metal.

As a result, the biggest gold ETF SPDR Gold Shares (GLD) is off 4% this year. The decline was more pronounced in the gold mining ETF space which trades as a leveraged play of the underlying metal. The largest gold mining ETF - Market Vectors Gold Miners ETF (GDX) - is down over 21% this year. However, things appear to be stabilizing at the start of Q4 (read: ETF Winners & Losers Post Dovish Fed Meet ).

What Gives Gold Miners a Bounce to Start Q4?

The below par jobs' report has raised questions over the health of the U.S. economy and the fate of the looming Fed policy tightening. Headline job gains for September came in at 142K versus estimates of 200K and the prior month's tally of 136K.

The originally reported tally for July was also revised lower to 223K from 245K originally. The year-to-date monthly pace of job gains now averages at 198K, though the pace for the last three months is much lower at 167K. This compares to the monthly average of 260K for 2014.

In any case, subdued inflation and a faltering global backdrop were always the deterrents to the looming Fed action. Only solid job numbers kept the likelihood of a sooner-than-expected Fed rate hike alive. So, the latest bit of employment information did magic for the gold and the related ETFs and the demand for the metal seems to have returned with the start of the fourth quarter on a weakening dollar.

On Friday, dollar ETF PowerShares DB US Dollar Bullish ETF (UUP) lost about 0.24% while GLD and GDX were up over 2.1% and 8.1% respectively. Gold miners delivered two successive years of losses in 2013 (down 50%) and 2014 (down 16%) and are on their way to imitate the prior performances this year too. It goes without saying that such huge sell-offs have made the metal's valuation so cheap that any single driver would easily take it to new heights.

Moreover, an unsteady global macroeconomic backdrop will likely keep the market rocky throughout Q4 and brighten the appeal for safe investments. Since, gold serves this purpose efficiently, Q4 can essay a turnaround story for gold this year (read: Short-Term Respite for Gold ETFs? ).

Time to Buy Gold Miners ETFs?

Despite the great start to the quarter, the fundamentals are still not strong. Investors should note that this job data-induced leap is likely to be short-lived. Sooner-or-later, the Fed will start tightening policies. Basically, gold miner ETFs are presently sitting on the fence with possibilities and perils on each side.

The bullish trend for gold mining ETFs could continue in the weeks ahead if more choppy economic data comes in, the rate hike possibility keep getting delayed, or some political issue creeps in. Thus, investors who go by the belief that "the trend is your friend" might take a look at these gold mining ETFs to make some quick bucks.

GDX in Focus

This is the most popular and actively traded gold miner ETF with AUM of $4.7 billion and average daily volume of around 65 million shares. The fund follows the NYSE Arca Gold Miners Index, holding 36 stocks in its basket. Canadian firms account for 55.1% of the assets, followed by the U.S. (13.2%) and South Africa (10.4%). The fund charges 53 bps in annual fees and returned over 8% on October 2 (see: all the Material ETFs here ).

Sprott Gold Miners ETF (SGDM)

This fund follows the Sprott Zacks Gold Miners Index, holding over 25 stocks in its basket. The product is skewed toward mid caps at 56% while the rest goes to small caps. The fund has amassed $108.3 million in its asset base and trades in a good volume of over 90,000 shares a day. It charges 57 bps in annual fees from investors. SGDM added about 8.2% on October2.

iShares MSCI Global Gold Miners ETF (RING)

This fund is the cheapest choice in the gold mining space, charging just 0.39% in fees and expenses. The fund has been able to manage assets worth $44 million while it trades in moderate volume of 105,000 shares. The ETF follows the MSCI ACWI Select Gold Miners Investable Market Index and holds 29 securities in its portfolio. Country holdings are also similar, with Canada as the top country, followed by South Africa and the U.S. The fund was up over 7.4% On October 2.

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SPDR-GOLD TRUST (GLD): ETF Research Reports

MKT VEC-GOLD MI (GDX): ETF Research Reports

PWRSH-DB US$ BU (UUP): ETF Research Reports

SPROTT-GOLD MNR (SGDM): ETF Research Reports

ISHARS-M GL GLD (RING): ETF Research Reports

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


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

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