Gold miners and the related exchange funds have been star performers this year. The resurgence after a dismal 2013 include five gold and silver mining ETFs ranking among this year’s top-11 non-leveraged ETFs.
In a sign of just how strong gold miners have been this year, the Market Vectors Gold Miners ETF (NYSEArca: GDX), the largest gold miners ETF, up 19% and does not rank among the top-11 ETFs. On Monday, with global stocks plunging on the back of concerning headlines out of Ukraine, physically-backed gold ETFs along with GDX and the Market Vectors Junior Gold Miners ETF (NYSEArca: GDXJ) were among the few green spots in what was a sea of red for most ETFs. [Resurgent Commodities ETFs]
Although gold prices are on the mend, coming off a strong performance in February that brought the first month of inflows to physically-backed gold funds in over a year, some of GDX’s holdings are mulling production cuts. That is not necessarily a bad thing. [More Good News for Mining ETFs]
Gold miners previously based reserve estimates on prices higher than where bullion traded for most of last year. That along with a spendthrift approach to mergers and acquisitions during the go-go days of gold’s rise, forced billions in writedowns last year. [Writedowns Could Strain Mining ETFs]
Falling gold prices forced $30 billion in writedowns in 2013, reports Liezel Hill for Bloomberg. Now, GDX constituents such as Barrick Gold (NYSE: ABX) and Goldcorp (NYSE: GG) are taking more disciplined approaches. Barrick Chief Executive Officer Jamie Sokalsky told Bloomberg “gold production in the industry could start to decline more than people think.”
A leaner, meaner mining industry could easily mean less gold coming to market in the years ahead, which could contribute to favorable supply and demand dynamics for the yellow.
That new found discipline should also benefit GDX and its holdings as those companies retain more cash while trimming operating costs. Last year, Barrick suspended work on its $8.5 billion Pascua-Lama project on the Argentina-Chile border, citing legal and regulatory uncertainty as well as lower gold prices, Bloomberg reported.
Barrick and Goldcorp combine for 26.6% of the $8 billion GDX’s weight.
Market Vectors Gold Miners ETF
ETF Trends editorial team contributed to this post.