Gold miners exchange traded funds, such as the VanEck Vectors Gold Miners ETF (NYSEArca: GDX) and the VanEck Vectors Gold Miners ETF (NYSEArca: GDXJ), were among the best-performing non-leveraged ETFs through the first half of this year, but for as quickly as those ETFs and others like them surged, that trade unraveled nearly as quickly.
Precious metals have been under pressure over the past several weeks as hints of an improving economy and a number of hawkish statements from Fed officials raised the prospect of a tightening monetary policy. The Fed raised interest rates for the first time this year yesterday, bringing additional pressure on gold and gold-related assets.
After flirting with a high around $32 in July, GDX, the largest gold miners ETF by assets, is struggling to say above $19. The ETF is in a bear market as confirmed by it residing about 40% below its July high and nearly 23% below its 200-day moving average.
GDX is comprised of global gold miners, with a notable tilt toward Canadian and U.S. mining companies. Nevertheless, gold assets may have further room to fall if the U.S. dollar and real bond yields continue to rise. However, gold miners still have their supporters, too.
“The precious metals are very oversold and ripe for a reversal as they usually bottom at year end then have massive rallies in the New Year. This seasonal pattern has been strong even during this bear market,” according to ETF Daily News.
Additionally, there is at least one 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.
SEE MORE: Gold Miners ETFs Confirm Strength Against Broad Market
While gold miner stocks and sector-related exchange traded funds look cheap after underperforming broader equities for years, some caution investors against betting too heavily on this area of the market as the sector rallies on strengthening bullion prices.
“Precious metals and mining may even grow greater in favor under President Trump. Trump wants inflation and supports mining and manufacturing which has been almost destroyed over the past eight years by regulations. Now may actually be the turning point in precious metals going into year end when gold is pulling back to uptrend support and is very oversold,” reports ETF Daily News.
For more information on the gold bullion market, visit our gold category.