Gold’s torrid pace has cooled a bit over the past couple of weeks, predictably prompting some investors to take profits in hot exchange traded funds such as the VanEck Vectors Gold Miners ETF (NYSEArca: GDX) and the VanEck Vectors Gold Miners ETF (NYSEArca: GDXJ).
As has been previously documented, most of the best-performing non-leveraged ETF this year are gold and silver miners ETFs, a group that includes GDX and GDXJ. The rapid rise of these ETFs and their rivals has some market observers questioning whether near-term pullbacks are looming.[related_stories]
However, there is at least one positive fundamental catalyst that potentially bodes well for gold miners ETFs going forward: Peak production of gold has likely come and gone, perhaps indicating that supply will dwindle, thereby boosting bullion prices.
“Gold discoveries peaked in 2007 and production will soon follow, strengthening the value of the yellow metal and possibly fueling a boom in mergers and acquisitions in the gold-mining sector, according to Sprott Asset Management,” reports MarketWatch.
Sprott sponsors its own gold miners ETFs, including the Sprott Gold Miners ETF (NYSEArca: SGDM), the first factor-based gold miners ETF. That ETF’s small-cap equivalent, the Sprott Junior Gold Miners ETF (NYSEArca: SGDJ), debuted last year.
Sprott’s “gold team said that 2015 may end up being the peak global production year for gold, at about 95 million ounces, with output in 2024 expected to fall to 78 million ounces. On an annualized basis, the decline would be about 2.2% a year, it said,” according to MarketWatch.
While gold miner stocks and sector-related exchange traded funds look cheap after underperforming broader equities for years, some caution investors against betting too heavily on this area of the market as the sector rallies on strengthening bullion prices.
Gold miners currently trade at about a 59% discount to gold prices since 2009, have a price-to-book value of 1.0x and an average dividend yield of 2.8%, which makes the sector look attractive from a valuation standpoint.
VanEck Vectors Gold Miners ETF