Said another way, during gold’s bear market, miners looked to improve their balance sheets by cutting production and selling assets. So even as gold prices surge, there is not a rush within the mining sector to immediately boost production.
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.
Moreover, U.S. economic weakness and speculation of the Federal Reserve pushing back on another interest rate hike have contributed to a depreciating U.S. dollar, which has also helped support USD-denominated gold bullion. Consequently, a weaker USD makes alternative assets like metals more attractive.
“More specifically, Gordon believes that GDX could move through to $32 if the UUP continues its current trend. To play the GDX for the upside, Gordon buys the 31-strike calls expiring on the first Friday in September, and sells the 32-strike calls of the same expiration, an overall bullish play that has him paying $0.43 per share, or $43 per contract,” according to CNBC.
For more information on the Gold ETFs, visit our Gold category.
VanEck Vectors Gold Miners ETF