Capitulation Time for Gold Miner ETFs?

April 5th at 3:14pm by John Spence

An exchange traded fund indexed to large-cap gold miners continued its downward spiral this week with a 7% loss on falling precious metal prices. Many investors appear to be throwing in the towel on the beleaguered sector.

Market Vectors Gold Miners (NYSEArca: GDX) touched a fresh 52-week low of $46 a share on Thursday and is on a six-week losing streak.

Market Vectors Junior Gold Miners (NYSEArca: GDXJ) was on track for a loss of more than 8% for the week. [Gold ETFs: Bullion or Mining Stocks?]

The gold miner ETFs followed bullion prices lower after the minutes from the latest Federal Reserve meeting triggered speculation the central bank won’t unveil more quantitative easing unless it sees evidence the economy is weakening.

GDX was down about 9% year to date heading into Thursday’s action, while the small-cap GDXJ slipped nearly 8%. They have been caught in a vicious downtrend since the beginning of March. [Gold Miner ETF Falls to 52-Week Low]

Investors have been waiting in vain for the sector to close the performance gap with gold. Gold miner ETFs have badly lagged bullion prices during gold’s historic rally.

Some analysts believe the underperformance of gold miners is due to the rising popularity of bullion-backed ETFs, which make it easier to invest in the precious metal. The theory is that gold ETFs have diverted money away from miner stocks. [Gold Miner ETFs Lose Their Luster]

“Market sentiment is overwhelmingly bearish on both gold and the miners (the miners are even more hated than the yellow metal itself),” writes Robert Sinn at the Stock Sage blog on Thursday.

“The mining industry has suffered from an industry wide round of cost inflation which has led to margin compression and disappointing earnings results even during a time of robust gold prices,” he added. “It seems to me that this sector is nearing a major inflection point as the institutional investors have largely fled the scene and some of the last stragglers are being carried out feet first as we speak.”

Market Vectors Gold Miners


The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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