China’s decision earlier this week to devalue its currency, the yuan, sent shock waves through global financial markets, but one group of downtrodden exchange traded funds is benefiting: Gold and silver miners funds.
Amid a savage commodities rout that has seen the SPDR Gold Shares (NYSEArca: GLD) and the iShares Silver Trust (NYSEArca: SLV) tumble 7.6% and 9.4%, respectively, over the past 90 days, gold and silver miners funds have been among this year’s worst-performing ETFs. For example, the Market Vectors Gold Miners ETF (NYSEArca: GDX) and the Market Vectors Junior Gold Miners ETF (NYSEArca: GDXJ) are off an average of 12.5% this year. [Commodities Crushed: Investors are Running Away From Commodities ETFs]
However, the yuan devaluation could be just the tonic ETFs like GDX and GDXJ. At least that is how markets treated miners ETFs on Wednesday when the top fiver ETFs in terms of percentage gains and eight of the top 10 ETFs by that metric were miners funds.
“China’s move should help gold and silver prices through risk-off investor diversification and heightened investment attention, especially from Chinese investors looking to protect purchasing power, and fragile global economic growth prospects highlighted by China’s struggles could delay any meaningful U.S. rate increases,” according to excerpts of a Sterne Agee note posted on Seeking Alpha.
Sterne Agee has buy ratings on Newmont Mining (NYSE: NEM), Agnico-Eagle (NYSE: AEM), Coeur Mining (NYSE: CDE) and Gold Resource Corp. (NYSE: GORO). Newmont, Agnico-Eagle and Coeur Mining combine for about 11.4% of the $4.6 billion GDX’s weight. Sterne Agee is neutral on Barrick Gold (NYSE: ABX), GDX’s fourth-largest holding just behind Newmont.