After ranking among the top-performing sector ETFs in August, gold mining funds retreated to their bearish ways in September as the Market Vectors Gold Miners ETF (NYSEArca: GDX) lost 12% to rank among the worst sector ETFs.
The Market Vectors Junior Gold Miners ETF (NYSEArca: GDXJ) was worse with a 15.1% September loss and the Global X Gold Explorers (NYSEArca: GLDX) was far worse than that with a September slide of 21.5%. GDX, the largest gold miners ETF, and its rivals face significant headwinds heading into October and not just because the tenth month of the year is historically bad for gold prices.
With gold prices struggling to stay above $1,300 an ounce, the spotlight is back on which miners are burning cash and which ones can profitably extract bullion from the earth when spot prices tumble to $1,300 or $1,200 per ounce or even lower. According to a Citigroup research note, global gold on mine unit costs rose 12% year-over-year in the June 2013 quarter. Due to the combination of rising costs and falling gold prices, gold miners have witnessed a quick contraction in margins. [Mining ETFs Vulnerable as Costs Rises]
Not only are the fundamentals troublesome for GDX and friends, but the technical picture is not the prettiest, either. GDX has not traded above its 200-day moving average since January. After rising above its 50-day moving average earlier this month, GDX now resides more than 8% below that important technical indicator. [It’s All About Price for Mining ETFs]
Not all observers have bleak outlooks on the mining ETFs, though. In reference to GDX and GDXJ, “these markets sitting between strong support and strong resistance. At current prices, GDX has 12% downside to its daily closing low while GDXJ has 21% downside to its daily closing low,” said Jordan Roy-Byrne.
While there may not be an excessive amount of good news for precious metals bulls, there is some and that includes what appears to be an ongoing bottoming process.
“The good news for precious metals bulls is this market remains in a bottoming process which should produce a turning point that is on par with those seen in 2000 and 2008. The bad news is we are already five months into this bottoming process and it can continue for several more months. We don’t see widespread news in the sector but it is possible that GDX makes a new low but not GDXJ. It’s possible Gold makes a new low but not Silver. Major divergences are common at major bottoms,” wrote Roy-Byrne.
To truly excite new buyers, GDX would have to string together closes above the $31 area, something it was unable to do even when the Federal Reserve made the no tapering announcement. However, both GDX and GDXJ look vulnerable to violating psychologically significant support areas. GDX at $25 and GDXJ at $40.
Market Vectors Gold Miners ETF
ETF Trends editorial team contributed to this post.