A Positive Fundamental View on Gold Miners ETFs

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]