The Market Vectors Gold Miners ETF (NYSEArca: GDX) entered Tuesday with a 2015 gain of 16.9%. That underscores the strength of gold miners in the new year because with that gain, GDX is merely the third-best miners ETF year-to-date, slightly trailing the iShares MSCI Global Gold Miners ETF (NYSEArca: RING) and well behind the Market Vectors Junior Gold Miners ETF (NYSEArca: GDXJ).
Each of the top six non-leveraged ETFs to this point in 2015 are gold and silver miners funds. Of course, GDX and friends are getting some help from much maligned gold futures and physically-backed ETFs. The SPDR Gold Shares (NYSEArca: GLD) is up 4.4% since the start of the year and is trading with 2% of where it was a year ago. Add to that, investors have put new money to work in GLD after pulling $3.2 billion from the largest gold ETF last year. [Gold ETFs Recover Some Lost Assets]
That is to say there legitimate fundamental factors propelling gold miners ETFs higher.
“The explanation for why some investors are finally going long of the miners is simple: A sharp drop in energy prices, positive foreign currency effects, major cost reduction programs and gold prices that have recovered to within 2% of year-ago levels. Against that backdrop, the gold miners should finally recover,” said Rareview Macro found Neil Azous in a note out Tuesday.
The impact of lower fuel prices for gold miners should not be overlooked. Miners are also benefiting from lower oil prices. Barrick Gold (NYSE: ABX), the world’s largest gold miner and the second-largest holding in GDX at 7.4% of GDX’s weight, could save up to $25 per ounce of gold produced thanks to lower diesel prices, according to Bullion Vault. [Production Conundrum for Gold Miners ETFs]
“Additionally, this is a classic example of buy-hold-sell research analysts finding themselves behind the curve. The key point here is that despite the positive catalysts listed above, the analyst consensus still expects gold miner earnings to decline this year. Anyone who is now buying the Miners clearly views the events as moving faster than analysts are able to react, and while they wait for clarity before revising their earnings projections the stock prices will go up a lot,” adds Azous.
It is also worth noting that production is not slowing even after two consecutive annual losses for GLD. On top of that gold miners, including those that make homes in GDX, have not been actively hedging production, indicating they believe a floor is in for gold prices.
“Gold miners are still not hedging their future production despite the recent price-drop to new 4.5-year lows, says the latest expert analysis, as zero interest rates and falling energy prices are deterring forward sales to lock in current prices,” reports Bullion Vault.
Market Vectors Gold Miners ETF