Investors in exchange traded funds that track gold and silver miners are hoping their recent bounce along with precious metals prices signals a reversal from the downtrend since April.
Europe’s debt crisis heating up has helped push gold and silver prices higher, and miner stocks have followed.
Market Vectors Gold Miners ETF (NYSEArca: GDX) is up about 4% over the past week, Market Vectors Junior Gold Miners ETF (NYSEArca: GDXJ) has rallied 7% and Global X Silver Miners ETF (NYSEArca: SIL) has gained 6%.
Some analysts think the medium-term outlook for precious metals prices and producers looks promising.
Two opposing forces are working on gold and silver prices. China’s central bank raised rates for the third time this year to combat inflation, which would be a negative on gold as an inflation hedge there. Conversely, fiscal woes in Europe, with the recent headlines centered on Portugal, have pushed up safe-haven investments such as gold, reports Andrew Burger for InvestorPlace. [Gold and Silver ETFs Rally as Moody’s Warns on China, Portugal.]
Additionally, according to a newsletter by GoldCore, gold is “now entering its period of traditional seasonal strength which is seen between July and December.”
RBC Capital Markets analysts predict that gold and silver stocks — especially companies with strong fundamentals, relatively low risk profiles and liquidity — will benefit from a rally in gold and silver prices in the last two quarters of the year, according to Benzinga.
“Following silver peaking in April, most mining companies have taken a significant haircut,” remarked Mike Niehuser, founder of Beacon Rock Research, at Business Insider. “This appears to be from a lack of demand or buying, rather than fundamentals or investors liquidating positions.”
Should gold prices strengthen through the end of the year, “lower stock prices should increase the demand for industry consolidation, acquisitions, stock repurchases or value investors,” added Niehuser. “Major mining companies or the Chinese wanting to secure pipelines of production may set off a rally in 2011.”
Eric Sprott, CEO of Sprott Asset Management, has also made large moves into gold and silver miners and he remains bullish on the outlook for precious metals, writes Scott Rubin for Benzinga.
For more information on gold or silver, visit our precious metals category.
Market Vectors Gold Miners ETF
