Gold miners and sector-related exchange traded funds have been trailing the market. However, the sell-off may have been overdone and could present a good opportunity for contrarian investors ahead of the Federal Reserve announcement.
Over the past month, the Market Vectors Gold Miners ETF (NYSEArca: GDX) fell 25.0%, Market Vectors Junior Gold Miners ETF (NYSEArca: GDXJ) declined 24.3% and Sprott Junior Gold Miners ETF (NYSEArca: SGDJ) decreased 26.5%. [Gold Miner Stocks, ETFs Trading at Cheapest to Bullion in Three Decades]
Meanwhile, the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) dropped about 6.8% over the past month. [Commodities Crushed: Investors are Running Away From Commodities ETFs]
“For the next month you have a decent probability of a bounce, especially with the Fed meeting because that’s the type of action we’ve seen after and during Fed meetings with the gold miners,” Larry McDonald, head of U.S. macro strategy at Societe Generale, told CNBC.
McDonald pointed out that gold miners have rallied after the last four or five times the Federal Reserve made a statement. In each instance, the Fed revealed a more dovish stance on monetary policies, which has been bullish for gold bullion and miners.
The Federal Open Market Committee meeting announcement is expected Wednesday afternoon.
For contrarian investors, this may be an opportunity to jump in on one of the most hated areas of the market. Over the past week, GLD has experienced $566.6 million in net outflows and GDX saw $79.1 million in outflows, according to ETF.com. [Professional Traders Really Hate Gold]
Looking at bullion and miner charts, the selling pressure has pushed down the relative strength of gold and gold miner ETFs into oversold territory for the past couple of weeks.
“This is a hurricane 5 in terms of the depth of the capitulation for the gold miners,” McDonald added. “The amount of people that have sold the gold miners in the last week are more than double the amount of shares outstanding.”
Market Vectors Gold Miners ETF
For more information on gold producers, visit our gold miners category.
Max Chen contributed to this article.
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.