Exchange traded funds backed by physical holdings of gold, including the group’s largest fund, the SPDR Gold Shares (NYSEArca: GLD), have rebounded with a vengeance. In the past month, GLD is up nearly 8%, but even that performance pales in comparison to what various equity-based mining ETFs have offered.
Nearly left for dead just a few months, ETFs such as the Market Vectors Gold Miners ETF (NYSE: GDX) have surged. In the past month, GDX is up nearly 12% and since the start of July, the ETF has gained almost 10%. Since its June lows, GDX has raked in more than $100 million in net asset flows via creations, according to Paul Weisbruch of Street One Financial. [ETF Chart of the Day: Gold Miners]
Miners’ recent out-performance of gold futures is a departure from what investors saw over the past few years. Gold futures and ETFs such as GLD rose, but GDX and other mining ETFs spent more time in the red than in the green. Over the past five years, GDX is still down more than 30%. [Technical Outlook Improving for Gold Miners ETF]
So when gold futures started declining earlier this year, it was not surprising that mining ETFs were subjected to significant pain. That pain grew worse as gold fell below $1,300 an ounce, stoking speculation that even large-cap miners would lose money if gold languished below that price area for too long. Newmont Mining (NYSE: NEM) recently announced a significant write-down to reflect falling gold prices. Barrick (NYSE: ABX) has looked to sell assets to generate cash. Those stocks combine for almost 20% of GDX’s weight.
With gold back above $1,300 per troy ounce, some miners could see some relief. Yamana Gold (NYSE: AUY), Barrick and Kinross Gold (NYSE: KGC) have all-in cash costs of $856 to $1,038 per ounce, writes James Brumley for InvestorPlace.
That is good news for GDX because that trio of names represent nearly 20% of the ETF’s weight. Miners are not completely out of the woods, at least not with gold futures merely flirting with $1,330 an ounce. Costs for Gold Fields (NYSE: GFI) are just under $1,300 an ounce while Iamgold (NYSE: IAG) has costs in the $1,200 to $1,300 per ounce range, according to InvestorPlace. Those two stocks combine for 6.7% of GDX’s weight.
Some traders believe $1,200 is the “line in the sand” for gold on the downside. If that level is breached, gold test $1,000. The other side of that coin is that it could take prices moving well above $1,400 an ounce for more investors to feel comfortable owning the miners again.
Market Vectors Gold Miners ETF
ETF Trends editorial team contributed to this piece. Tom Lydon’s clients own shares of GLD.