Bullion and precious metals miners have benefited from the recent shift toward safe-haven assets and ongoing accommodative monetary policies around the world. However, miners and related exchange traded funds could continue to outperform in a strengthening gold environment.
Precious metals’ “gains are much lower than that of ETFs that hold gold mining stocks; these ETFs have more than doubled in value” over the first seven months, Todd Rosenbluth, S&P Global Market Intelligence Director of ETF Research, said in a note.[related_stories]
Matt Miller, S&P Global Market Intelligence equity analyst, attributes the sudden outperformance in gold miners to the high levels, and in some cases financial, leverage among the mining industry. Furthermore, many miners are seeing higher margins and strong free cash flow, which have been due to a dip in All-In Sustaining Costs – AISC is a standardized measure of cost reporting that projects full-cycle costs to produce and sell one ounce of gold, so a lower AISC contributes to wider profit margins.
For example, Barrick Gold Corp. (NYSE: ABX) has gained 191.7% year-to-date. The stock has been strengthening after recently reporting strong earnings on increased operating efficiency, despite revealing a second quarter dip in revenue year-over-year. ABX is the largest component in GDX’s portfolio, accounting for 10.4% of the ETF’s holdings.
SEE MORE: Pros Bet on Gold ETF Rebound
Looking ahead, given the rising price of gold, Miller argues that these miners can generate even greater profits, especially after recent cost control efforts.
For more on the gold market, visit our gold category.
VanEck Vectors Gold Miners ETF