Things are getting worse, not better for exchange traded funds related to gold. Starting with the usual suspects, the SPDR Gold Shares (NYSEArca: GLD) and the iShares Gold Trust (NYSEArca: IAU) closed at new 52-week lows Friday amid a stellar rally by U.S. stocks after the U.S. Labor Department said employers in the world’s largest economy added 248,000 jobs in September.
Speaking of September, the ninth month of the year is historically kind to gold, but September 2014 was anything but. For the week ended Sept. 30, investors pulled $140.2 million from GLD, the largest physically-backed gold ETF, and $89.5 million from IAU, bringing outflows from GLD and IAU to $986.2 million and $117.1 million, respectively. [Gold ETF Departures on the Rise].
The two ETFs along with equivalent physically-backed rivals flirted with 5% losses last month. Of course, this bad news for miners ETFs. On Friday, the Market Vectors Gold Miners ETF (NYSEArca: GDX), narrowly averted making a new 52-week low as the largest gold miners ETF sank 4.6% on volume that was nearly 73% above the daily average. TheMarket Vectors Junior Gold Miners ETF (NYSEArca: GDXJ) tumbled 7% on volume was that 34.5% above average.
That GDX and GDXJ did not print new 52-week lows on Friday is impressive. Sixty-seven ETFs and ETNs did. Of those 67 ETFs, 34 are plays on precious metals and of those 34, 29 feature some exposure to gold. Still, it cannot be ignored that with Friday’s declines, GDX and GDXJ have again entered bear markets with 90-day declines of 23% and 28.4%, respectively.
In what could be a harbinger of looming weakness for miners, the PHLX Gold/Silver Index (XAU), the oldest index tracking gold and silver miners, lost nearly 4% Friday. On the surface, that closing print looks like a new 52-week low. Further examination reveals XAU closed at a six-year low.
Worse yet, XAU has simultaneously violated 14-year old support created by a rising channel and 12-year horizontal support, notes Chris Kimble of Kimble Charting Solutions.
Violation of such long-term support lines by XAU could portend further weakness for GDX, GDXJ and other bullish miners ETFs.
It would appear that the near-term path of least resistance for miners stocks and ETFs is down and there is anecdotal evidence to support that claim. As we have previously unearthed, investors have a tendency to embrace bullish leveraged miners, such as the Direxion Daily Gold Miners Bull 3X Shares (NYSEArca: NUGT) and the Direxion Daily Junior Gold Miners Index Bull 3x Share (NYSEArca: JNUG), at the wrong times. [Getting it Wrong With Leveraged Gold ETFs]
Making that scenario all the worse is that embracing JNUG and NUGT means eschewing the Direxion Daily Gold Miners Bear 3X Shares (NYSEArca: DUST) and the Direxion Daily Junior Gold Miners Index Bear 3X Shares (NYSEArca: JDST).
Over the 30-day period ending Oct. 2, NUGT and JNUG had seen positive creation activity to the tune of a combined $23.2 million while investors yanked a combined $9.4 million from DUST and JDST, according to Direxion data.
XAU & GDX Charts
Chart Courtesy: Kimble Charting Solutions
Tom Lydon’s clients own shares of GLD.