ETF Trends
ETF Trends

The Market Vectors Gold Miners ETF (NYSEArca: GDX) slumped nearly 4% Tuesday while its small-cap counterpart, the Market Vectors Junior Gold Miners ETF (NYSEArca: GDXJ) tumbled5.4%.

If there is a bright spot in those declines, it is that neither GDX nor GDXJ visited Tuesday’s all-time low club. Still, both ETFs as well as several rival gold miners ETFs continue hovering near multi-year lows with an outlook that is far from sanguine. [Just Another Day for Miners ETFs]

Holdings in GDX, GDXJ and rival miners ETFs are facing the toxic situation of tumbling gold prices and rising debt burdens.

The most significant change within the gold sector over the past four years has been the levels of debt that North American gold producers have added to their balance sheets. The Tier I producers hold an estimated $24 billion in debt, versus their combined market capitalization of $41 billion and the Tier II producers hold $5.8 billion in debt, versus their combined market capitalization of $21.1 billion,” according to a research note by RBC’s Stephen Walker posted by Ben Levisohn of Barron’s.

COMEX gold futures settle at $1,167.90 per troy ounce Tuesday. That after the SPDR Gold Shares (NYSEArca: GLD) slumped 3.5% last month on its way to shedding $1.1 billion in assets, the largest monthly outflow from the ETF this year. GLD’s bullion holdings now reside at the lowest levels in six years. [October was Unkind to Gold ETFs]

Things are likely to get worse for the miners if gold violates $1,100 per ounce. As RBC notes, some companies, including some found in GDX, can survive an environment in which gold labors around $1,200 per ounce, but the $1,100 area is where some miners will be pinched.

Companies that we believe could struggle in a $1,100 gold environment, if they do not cut/defer discretionary costs and/or cut dividends include Kinross Gold (NYSE: KGC), Detour Gold, Iamgold (NYSE: IAG), Allied Nevada Gold (NYSE: ANV), AuRico Gold (NYSE: AUQ), LakeShore Gold (NYSE: LSG), Primero Mining (NYSE: PPP), Teranga Gold, Pan American Silver (NasdaqGS: PAAS) and Silver Standard (NasdaqGS: SSRI),” said RBC in the note posted by Barron’s.

Kinross, Pan American Silver, Detour Gold, Aurico Gold, Iamgold, Primero Mining and Silver Standard combine for about 6% of GDX’s weight.

Market Vectors Gold Miners ETF

ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of GLD.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.