Exchange traded funds that track gold bullion and miner stocks have been moving in different directions lately with the shares following equity markets lower.
Market Vectors Gold Miners (NYSEArca: GDX) was down nearly 3% in afternoon trading Wednesday. It entered the session with an 11% year-to-date loss, according to Morningstar.
SPDR Gold Shares (NYSEArca: GLD), which holds bullion, was fractionally lower Wednesday but has been steadily climbing since the sell-off in precious metals in early May. It is up about 8% so far in 2011.
The performance divergence is a reminder that different factors can influence miner stocks versus physical gold.
“The fund invests in the stocks of gold miners, not bullion. As such, this is an indirect play on gold prices, with all of the attendant risk that it might not serve as a good inflation hedge or remain in lock step with the trajectory of the gold market,” Morningstar analysts write in a profile of Market Vectors Gold Miners.
“These firms have enormous fixed-operating costs. Their cash flows–which is what you ultimately invest in when buying this fund–can swing much more dramatically than metal prices,” the analysts said. “That operating leverage and currency gyrations have made this fund’s index more than twice as volatile as the spot price of gold over the last one and three year time-frames.”
From a technical standpoint, even though gold is close to all-time highs and well above its 2007 levels, the miner ETF is currently trading at the same price it was in 2007, notes Chris Kimble at Kimble Charting Solutions.
Market Vectors Gold Miners
SPDR Gold Shares
Full disclosure: Tom Lydon’s clients own GLD.
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