Gold Mining ETFs Thump Physical Counterparts

March 18th at 10:00am by Tom Lydon

Gold’s 2014 resurgence has, of course, been a boon for exchange traded funds backed by physical holdings of the yellow metal such as the SPDR Gold Shares (NYSEArca: GLD).

Bullion’s bounce has been an even bigger boon for mining ETFs like the Market Vectors Gold Miners ETF (NYSEArca: GDX). GDX is the largest gold mining ETF with $8.9 billion in assets under management.

GDX “climbed 27 percent this year, more than double the 13 percent advance” for GLD, reports Debarati Roy for Bloomberg. This is the first quarter GDX is outpacing GLD since 2012, according to Bloomberg.

The rise of GDX and rival gold mining ETFs comes after the funds and physically-backed gold ETFs were repudiated in 2013. Last year’s decline in gold mining shares prompted some of the most extreme readings of bearish sentiment in major gold mining indices in multiple decades, creating what some analysts highlighted as a rare buying opportunity. [A Generational Opportunity in Gold Mining ETFs]

That assessment has proven accurate as seven of the top-11 non-leveraged ETFs in 2014 are gold or silver mining ETFs. So strong have mining ETFs been that GDX’s almost 27% year-to-date is only good enough to make it the third-best gold mining ETF behind the Global X Gold Explorers ETF (NYSEArca: GLDX) and the Market Vectors Junior Gold Miners ETF (NYSEArca: GDXJ). [Production Cuts Could Lift Miners]

Silver mining ETFs are also outpacing their physically-backed counterparts. For example, the iShares Silver Trust (NYSEArca: SLV) is up nearly 6% year-to-date, but the Global X Silver Miners ETF (NYSEArca: SIL) is higher by nearly 22% while the PureFunds ISE Junior Silver Small Cap Miners/Explorers ETF (NYSEArca: SILJ) is up 33.1%. [Small Silver Miners ETF Surges]

Large-cap miners, such as those found in GDX and the iShares MSCI Global Gold Miners ETF (NYSEArca: RING), are expected to generate free cash flow for the first time in three years, Bloomberg reported. “he nine largest producers by sales may generate $2.31 billion of free cash flow this year and $4.97 billion in 2015, compared with negative $5.16 billion last year and minus $4.51 billion in 2012,” according to the news agency.

GDX has not outperformed GLD on an annual basis since 2010. That was also the last time SIL outpaced SLV. Although GDX has easily outperformed GLD, the latter has raked in $816 in new assets this year, more than double the capital allocated to its mining rival.

Market Vectors Gold Mining ETF

ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of GLD and SLV.

The opinions and forecasts expressed herein are solely those of Tom Lydon, 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.