Gold miner stocks and exchange traded funds are beginning to show improvements as gold prices inch back to $1,800 an ounce once again. Investors, though, may find that small-cap or “junior” gold miners could outperform their larger counterparts.
Market Vectors Gold Miners ETF (NYSEArca: GDX) is up 9.0% year-to-date while the Market Vectors Junior Gold Miners ETF (NYSEArca: GDXJ) has jumped 17.4%. [Gold Miner ETFs Ride Bullion Toward $1,800]
However, miner stocks followed gold prices sharply lower Wednesday after Federal Reserve Chairman Ben Bernanke cooled hopes the central bank will engage in more quantitative easing to assist the economy. [Gold, Miner ETFs Tumble]
Investors should focus on small-cap miners since they have a greater likelihood of growth and leverage to gold, especially since large producers have not historically outperformed gold consistently, writes Jordan Roy-Byrne, proprietor of Trendsman Research, for ETF Daily News.
“Small caps will work their way back to the high before the end of the summer,” Roy-Byrne said in the article. “It will take the time to overcome resistance but the trend will remain higher. The bottom line is small-cap gold stocks have completed a textbook breakout and retest.”
So far, the combination of rising gold prices and improvements in miners’ low valuations is boosting the momentum in gold stocks, Roy-Byrne added. Gold companies are seeing record profits as gold prices have hit their all-time highs, but the leveraged small caps have been trading near their lows relative to gold – they are currently lagging behind the historical price ratio relative to physical gold.
Roy-Byrne projects that if the price ratio between gold and junior miners returns back to normal levels, small-cap gold stocks could rally if bullion prices continue to rise.
Market Vectors Junior Gold Miners ETF
For more information on gold stocks, visit our gold miners category.
Max Chen contributed to this article.