It is no secret that trading gold and gold miners exchange traded funds from the long side this year has been a perilous endeavor.
Making matters worse is recent price action for the major gold miners ETFs is giving investors little reason to believe 2015 will be much better than 2014 for the beleaguered group. Over the past month, the Market Vectors Gold Miners ETF (NYSEArca: GDX) has lost about 9%, less than half the loss incurred by the Market Vectors Junior Gold Miners ETF (NYSEArca: GDXJ) over the same period.
A technical look at the NYSE Arca Gold Bugs Index (HUI), which is not the index tracked by GDX or GDXJ, shows there could be reason for optimism with the downtrodden miners heading into 2015.
“When we look back on 2014, one thing is clear, it wasn’t a good year to ;Buy & Hold; the Gold Bugs Index,” notes Chris Kimble of Kimble Charting Solutions.
The Gold Bugs Index, which like GDX, includes significant weights to big-name miners such as Barrick Gold (NYSE: ABX) and Goldcorp (NYSE: GG), also includes companies that do not hedge future production beyond 1.5 years.
Miners hedge production to lock in current prices for future output and the lack of recent hedging could be a sign that the companies extracting gold from the earth do not expect the yellow metal to fall much further. However, miners are still not actively hedging future production in what a may be a sign that they do not expect bullion prices to fall much further. [Gold Miners ETFs Look for Good Cheer]
“The multi-year decline has taken the Gold Bugs index down to the bottom of its falling channel where it touched this line last month. As it was touching the bottom of the falling channel, it also hit a key price line that was important resistance in 2002 & 2003 and was support at the financial crisis lows in 2009,” said Kimble.
While low oil prices have been blamed for eroding the inflation-fighting potency of gold, there is no denying that lower fuel prices help the miners. For example, Barrick would save $25 per ounce in production costs if diesel prices stay at current levels.
Investors have remained loyal to miners ETFs this year despite the disappointing price action. GDXJ has added over $1.1 billion in new assets while the Sprott Gold Miners ETF (NYSEArca: SGDM) recently topped $100 million in assets under management after coming to market in July. [Sprott Miners ETF Tops $100M in AUM]
SGDM tracks the Sprott Zacks Gold Miners Index, which seeks to emphasize gold stocks with the highest quarterly revenue growth measured on a year-over-year basis and stronger relative balance sheets as measured by long-term debt to equity,” according to Sprott.
Chart Courtesy: Kimble Charting Solutions