The overriding trend for the Market Vectors Gold Miners ETF (NYSEArca: GDX) this year has been down, but the $7.1 billion ETF could be poised to deliver some near-term upside.
GDX investors could use some good news as the ETF has tumbled about 10% in the past month. And with gold futures struggling to stay above $1,300 an ounce, questions linger about the ability of some GDX constituents to remain profitable if gold prices give up more ground. [Mining ETFs Vulnerable as Gold ETFs Tumble]
Gold prices and productions are fundamental factors. On the technical side of the ledger, at least one analyst sees opportunity with the volatile GDX. In reference to price action see on Wednesday, Tarquin Coe of the Coe Report, said GDX “rallied strongly off its lows earlier this morning. Price support from early August looks to be effective. The relative chart versus the S&P 500 may also be finding a floor from its July/August lows. Potential for an oversold bounce by the miners.”
Coe also noted reversals in Barrick Gold (NYSE: ABX) and AngloGold Ashanti (NYSE: AU) that could prompt some near-term short covering in those names. Those stocks combine for nearly 15% of GDX’s weight. Alone, Barrick is the ETF’s second-largest holding with a weight of 10.5%.
The bullish technical outlook for GDX could come to fruition, but gold futures will need to chip in with higher prices. In late September, Citigroup estimated that 98% of gold companies on are “cash-burning” at spot gold of $1,320 per ounce. [Analysts See More Pain for Gold Mining Stocks, ETFs]
“Gold companies have continued to cut capex, exploration, and corporate costs in order to make ends meet in a lower gold price environment,” wrote Citi analysts. “Despite these cuts, we estimate that most of the global gold cost curve is burning cash at spot levels.”
Market Vectors Gold Miners ETF