Previously high-flying gold miners stocks and exchange traded funds endured a brutal August. For example, the Sprott Gold Miners ETF (NYSEArca: SGDM), iShares MSCI Global Gold Miners Fund (NYSEArca: RING) and the Market Vectors Gold Miners ETF (NYSEArca: GDX) posted an average loss of more than 17% last month.
Speculation that the Federal Reserve is nearing its first interest rate hike this year, which could lift the dollar while punishing gold, is one factor weighing on gold miners and the aforementioned ETFs. As investors have already learned this year with gold and gold miners, the longer rates stay low, the better for gold-related assets.
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.
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.
There is something else to consider with gold miners: The potential for higher dividends.[related_stories]