Despite sky-high gold prices, even after this most recent pullback, gold miner exchange traded funds (ETFs) are suddenly feeling some pain. What gives?

Gold prices gained 25% last year and gold miner ETFs did even better; Market Vectors Gold Miners (NYSEArca: GDX) finished the year up 33%, while the Market Vectors Junior Gold Miners ETF (NYSEArca: GDXJ) gained 55%.

So far this year, the funds are down 7.7% and 9.5%, respectively. A few things are going on here:

  • Investors didn’t believe that mining companies are capable of replacing their production in the future, reports Ellen Roseman for The Star. Mines are getting depleted and those in more volatile countries can come with political risks.
  • Costs are getting higher for gold mining operations. For example, companies have to pay more for the oil that fuels the vehicles, along with the gigantic tires on large mining trucks. [Gold ETFs: Is There Life Left?]
  • Nick Barisheff is president of Bullion Management Group Inc. also commented that the current market climate shows investors are shifting toward wealth preservation instead of speculating on mining stocks. Still, managers suggests overweighting gold mining stocks if you’re optimistic about the overall stock market, but hold bullion if a sharp decline is coming.

For more information on gold mining, visit our gold miners category.

Max Chen contributed to this article

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.