Investing in metal mining ETFs has been pretty rough this year. After a bad stretch in the first half of this year, metal mining ETFs recovered somewhat thanks to the taper concerns as well as a sluggish dollar. However, Fed’s decision to hold back tapering of its monthly bond buying program on Sep 18 led to another slump for the mining ETFs. (Read: Inside Biotech ETFs–Can the Run continue?)
While the ‘Taper hold’ decision infused fresh life in the equity market, it beat down precious metals like gold and silver causing these products to underperform the broader stock market greatly. The situation is even more depressing for the miners as compared to their bullion tracking counterparts as most mining companies tend to be a leveraged play on the prices of underlying metals.
The most popular gold mining ETF, (NYSEARCA:GDX), has lost 15.7% (as of October 8) since September 18, while the most popular silver mining ETF (NYSEARCA:SIL), copper mining ETF First Trust ISE Global Copper Index (NASDAQ:CU) and Global X Junior Miners ETF (NYSEARCA:JUNR) respectively lost 18.4%, 8.0% and 11%, suggesting a languishing trend across the space.
Apart from the issues in the US, a week-long National Day holiday in China was also responsible for some declines in mining ETFs in the past week as China is the major consumer of many metals. As far as gold is concerned, the largest importer India passed a bill about two months ago, which stipulates that a fifth of all imports are to be re-exported. All these factors had a cautious impact on the metal mining market.
Below is the chart highlighting the extent of loss these mining ETFs suffered in the last one month period as of October 8, 2013.
Is There Any Hope?
Although a mining rally is losing steam of late thanks to the completely unanticipated “Taper Hold” that reversed investor attention towards the stock market, the Fed’s cut in GDP outlook implies that the picture is not as rosy as perceived by most.
This sentiment may provide a little support to the commodity outlook. Also, the industrial economy seems to be reviving somewhat across the globe, while the relatively sluggish dollar is also boosting demand for hard assets.