Market Vectors Gold Miners ETF: Bargain Or Trap? (GDX)
Christian Magoon: tracking gold mining companies have had a rough few years in terms of performance. Now it appears another inflection point is about to occur for these indirect gold plays. Will they sink lower and test three year lows or will a bounce upward occur?
Here’s a three year chart below of the largest gold miners ETF (NYSEARCA:GDX) in the market. GDX owns large cap mining companies and was the first gold miners ETF to launch in the United States. The chart illustrates the roller coaster ride gold mining companies have been on for several years and the dilemma GDX investors face today.
GDX’s performance alongside its 150 day moving average.
GDX’s current price is certainly closer to its three year low than high. Despite that positioning however, GDX hasn’t exhibited any bounce back momentum since August of last year. It was around that time that the QE3 trade began to happen which ignited gold and gold stocks for several months. Since October of 2012 however, gold stocks have fizzled.
CATALYSTS FOR GOLD MINERS ETF GAINS
Many cite the increased costs of mining gold as the chief culprit for gold stock underperformance, and more mining companies appear to be focusing on reducing their costs in 2013. Also taking wind from gold mining’s sails is a gold price that has been sliding lower. Should gold miners become more efficient operators and gold prices make a run upward to the often mentioned $2000 price point, gold stocks have a great chance to outperform physical gold. They did so in the last rally in August of 2012 and will likely do so again.
In the meantime, gold miners ETF products like GDX are providing attractive entry points for patient investors who are bullish on gold miners over the next several years. For those with shorter time horizons however, gold mining stocks appear too uncertain to speculate on.
Christian Magoon is Publisher of GoldETFs.biz and IndiaETFs.com. He is also CEO of Magoon Capital, a strategic consultant firm to asset managers. Christian Magoon is an ETF insider, having launched over 40 ETFs in the United States to date. A widely recognized thought leader on finance and market issues, Christian regularly contributes to many financial media outlets. Prior to forming Magoon Capital in 2010, Christian was President of Claymore Securities (now Guggenheim Investments), where he built one of the fastest growing and most innovative ETF businesses in the country, gathering more than $3 billion in AUM in three years. He launched more than 40 ETFs, introducing many “firsts” to the U.S. market, including the first Frontier Markets, Sector Rotation, Solar Energy, Timber, BRIC and suite of China focused ETFs. Christian consistently provides his industry insights and knowledge as a commentator in the U.S. media speaking publicly on macro investment issues and ETF related topics. Follow him on Twitter @ChristianMagoon. In 2008, he was named by Institutional Investor News as one of the five people to watch in the U.S. ETF marketplace. In 2011,Financial Planning magazine dubbed Christian an “ETF Pioneer.”