Metals-related exchange traded funds have enjoyed a rally this year, but traders and the miners themselves are growing more pessimistic over the future outlook.
Over the past month, SPDR Gold Shares (NYSEArca: GLD) fell 1.8%, iShares Silver Trust ETF (NYSEArca: SLV) declined 4.7%, VanEck Vectors Gold Miners ETF (NYSEArca: GDX) dipped 0.2% and iShares MSCI Global Silver Miners Fund ETF (NYSEArca: SLVP) slipped 1.2%.
Related: 31 Gold ETFs Investors Should Size Up
Meanwhile, the broader SPDR Metals & Mining ETF (NYSEArca: XME) fell 5.4% and Materials Select Sector SPDR (NYSEArca: XLB) dropped 0.5% over the past month.
Mining executives warned that the weakness in the metals space could continue on uncertainty over Chinese growth, oversupply in many metals and resources and stronger U.S. dollar, reports Alex MacDonald for the Wall Street Journal.
“Although we have recently seen some positive signals…we are expecting another year or two of low copper prices,” Jean-Paul Luksic, chairman of Chilean copper producer Antofagasta PLC, said.
Related: Strengthening Dollar Plaguing Copper ETN
The iPath Dow Jones-UBS Copper Subindex Total Return ETN (NYSEArca: JJC) declined 7.2% over the past month.
[related_stories]Many industrial metals and miners rallied on the belief that China would support growth through stimulus measures, augmenting demand for metals while enticing investors to jump back in. Moreover, the depreciating U.S. dollar made USD-denominated resources cheaper for foreign buyers. The ongoing global low-yield environment also pushed investors toward more attractive assets, like commodities.
However, Beijing has played down expectations for further stimulus and the U.S. dollar is strengthening again on expectations the Federal Reserve will hike rates.
“I would say the recent softness has more to do with increased expectations that the Fed will raise interest rates in June and its effect on the U.S. dollar,” Tom Albanese, chief executive of mining giant Vedanta Resources PLC, told the WSJ, arguing that the rally just went “beyond what the fundamentals would suggest.”
Related: ETF Traders Turning Bearish on Gold Miners
ETF investors can also hedge against a pullback in the mining sector. For example, the ProShares UltraShort Basic Materials (NYSEArca: SMN) and ProShares Short Basic Materials (NYSEArca: SBM) take short or inverse positions on the broad materials sector. Additionally, ETF traders have also taken short precious metals miners through options like the Direxion Daily Gold Miners Bear 3X Shares (NYSEArca: DUST) and Direxion Daily Junior Gold Miners Index Bear 3X Shares (NYSEArca: JDST).
For more information on the miners sector, visit our metals & mining category.