More Trouble Ahead For Gold Mining ETFs

gold miner pickGold miners are under pressure once again after a surprise jump in U.S. jobs growth and stronger-than-expected 2.8% GDP growth in the third quarter. These apparently encouraging data points reignited fears of a monetary stimulus cut from the Fed soon that would boost the dollar against a basket of major currencies and dampen safe haven appeal across the board.

This bearish trend is further confirmed by rising worries about tightening policy in China in order to prevent a flare-up in property prices and growing inflation, and European Central Bank’s surprising rate cuts.

Moreover, demand in India, the biggest consumer of gold, remains soft as government has curbed imports and investors are shifting their exposure to surging equity markets.

Thanks to this news, gold futures for December delivery have slumped from about $1,323/oz. at the end of October to the current level of below $1,280/oz., suggesting a bearish sentiment in the space. Notably, the yellow metal is heading for its first annual decline in 13 years.

Investors should note that gold bullion is down nearly 24% in the year-to-date time frame and might decline further in the coming days if we see another round of strong economic data (read: No Respite for Gold ETF Bear Run).

Usually, gold miners trade as a leveraged play on underlying precious metals. This means that when gold prices slump, gold miners lose even more, as they tend to experience extreme losses when compared to their bullion cousins.

Market Impact

In such a backdrop, gold miners are certainly being hit hard by gold bullion’s slump, as top gold mining ETFs like Market Vectors Gold Mining ETF (GDX), Market Vectors Junior Gold Miners ETF (GDXJ) and iShares MSCI Global Gold Miners ETF (RING) saw loses near double digits in the past 10 trading sessions.

This was a lackluster performance considering that the ultra-popular SPDR Gold Trust ETF (GLD) and iShares Gold Trust (IAU) posted losses of nearly 5% over the past 10 days.

Gold Mining ETFs in Focus

With AUM of over $4.6 billion and an average daily volume of more than 36 million shares, GDX is the most popular ETF in the gold mining space and tracks the NYSE Arca Gold Miners Index. Canadian firms account for roughly three-fifths of the assets while the U.S. (13.2%) and South Africa (9.3%) round out the top three.

The fund holds 37 stocks in its basket with heavy concentration to top two Canadian firms – Goldcorp (GG) and Barrick Gold (ABX) at 11% each and one U.S. firm – Newmont Mining (NEM) at nearly 8%. The product charges 52 bps in fees per year from investors.

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