Gold miners exchange traded funds, such as the VanEck Vectors Gold Miners ETF (NYSEArca: GDX) and the VanEck Vectors Gold Miners ETF (NYSEArca: GDXJ), have spent considerable time among this year’s best-performing non-leveraged ETFs. However, some of that shine recently dulled as GDX is off 14.5% over the past month.
The Federal Reserve is seen as the primary culprit behind the recent struggles faced by gold and the related mining ETFs. The Fed meets later this week and some traders are still wagering that the U.S. central bank could unveil its first interest rate hike of 2016.
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Gold has enjoyed greater demand in a low interest-rate environment as the hard asset becomes more attractive to investors compared to yield-bearing assets. However, traders lose interest in gold when rates rise since the bullion does not produce a yield.
If the Fed is still wed to economic data, the most recent jobs reports, which spurred gold and miners ETFs higher, could mean the central bank again leaves rates unchanged later this week. Precious metals-related assets rallied after the Labor Department revealed U.S. nonfarm payrolls rose by 151,000 in August, compared to expectations of about 180,000 new additions.
“The weak jobs report for the month of August had made the possibility of a rate hike at the next FOMC unlikely. In fact, the possibility of a rate hike in 2016 itself had gone down significantly. The Fed meets two more times after the September FOMC. However, the central bank has never raised rates before a Presidential election,” according to Seeking Alpha.
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The Fed’s reluctance to raise interest rates is contributing to a weaker dollar, which has also helped support USD-denominated gold bullion. Consequently, a weaker USD makes alternative assets like metals more attractive.
However, it must be noted that the Fed did not give a specific timeframe for when it could raise rates again. As investors have already learned this year with gold and gold miners, the longer rates stay low, the better for gold-related assets.
“GDX is still up nearly 90% for the year. Those gains of course have been driven by a dovish Fed. If the Fed does hike in December then it would be a short-term negative for gold prices and GDX. However, I continue to believe that the pace of rate hike will be slow,” adds Seeking Alpha.
For more information on the gold bullion market, visit our gold category.
VanEck Vectors Gold Miners ETF
