While gold bullion has somewhat weakened this year, gold miner stocks and related exchange traded have taken a dive, leading some traders to believe that the industry may be oversold.
Year-to-date, the SPDR Gold Shares (NYSEArca: GLD) has dipped 3.0%. Meanwhile, the Market Vectors Gold Miners ETF (NYSEArca: GDX), the largest and most heavily traded gold miners ETF, declined 11.3% and Market Vectors Junior Gold Miners ETF (NYSEArca: GDXJ) fell 7.6%. Additionally, the Sprott Gold Miners ETF (NYSEArca: SGDM), the first factor-based gold miners ETF, plunged 15.7% so far this year while the small-cap equivalent, the Sprott Junior Gold Miners ETF (NYSEArca: SGDJ), has decreased 12.0% over the past three months.
On the other hand, bearish bets on the gold miners have been shining.
Over the past three months, the Direxion Daily Gold Miners Bear 3X Shares (NYSEArca: DUST) jumped 64.4%, the Direxion Daily Junior Gold Miners Index Bear 3X Shares (NYSEArca: JDST) surged 24.5%, ProShares UltraShort Gold Miners (NYSEArca: GDXS) gained 41.4% and ProShares UltraShort Junior Miners (NYSEArca: GDJS) increased 19.4%.
After the drop-off this year, gold mining stocks are now the cheapest relative to gold bullion since at least the 1980s, reports Isaac Arnsdorf for Bloomberg.
Consequently, some argue that the gold miner space looks like a cheap buying opportunity. In July, Morgan Stanley upgraded its outlook on Goldcorp Inc (NYSE: GG), the largest gold miner in the space, pointing to the company’s attractive valuations.
Those with a high conviction of a miner rebound could turn to bullish ETF options as well. For example, the, Direxion Daily Junior Gold Miners Index Bull 3x Shares (NYSEArca: JNUG) and the Direxion Daily Gold Miners Bull 3X Shares (NYSEArca: NUGT) take the 3x or 300% daily performance of a group of large gold miners and junior miners, respectively. Furthermore, the recently launched ProShares Ultra Gold Miners (NYSEArca: GDXX) and ProShares Ultra Junior Miners (NYSEArca: GDJJ) take the 2x or 200% daily performance of large miners and junior miners, respectively. [Gold Miners ETF Field Expands With Double-Leveraged Funds]
However, others warn that the link between gold prices and miners is weakening, citing the increased usage of over-the-counter swaps and ETFs as proxies. Moreover, the enterprise value of gold miners relative to reserves and resources is at an eight-year low.
For more information on gold producers, visit our gold miners category.
Max Chen contributed to this article.