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]
“Increased shareholder pressure is likely to lead to higher dividends and, potentially, share repurchases should gold prices remain near or above current levels,” according to a Standard & Poor’s note posted by Amey Stone of Barron’s.
SEE MORE: 31 Gold ETFs Investors Should Size Up
There is another 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.
“Newmont Mining (NEM) announced that it will revisit its dividend strategy, which is linked to gold prices, and that could lead to an increase. In addition, Gold Fields (GFI) significantly hiked its interim dividend for 2016 (to 50 rand cents per share from 4 rand cents per share in the January-June period last year) and AngloGold Ashanti Ltd. is considering resuming dividend payments in 2017 after a three-year holiday. Other gold companies could consider share buybacks,” according to the S&P note posted by Barron’s.
For more information on gold producers, visit our gold miners category.
VanEck Vectors Gold Miners ETF
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.