The VanEck Vectors Gold Miners ETF (NYSEArca: GDX) and the VanEck Vectors Gold Miners ETF (NYSEArca: GDXJ), the two largest gold miners ETFs, stumbled to end 2016, but are shaking off some of that rust to start the new year.
For example, GDX and GDXJ are up 8.7% and 16.2%, respectively since the start of this year. GDXJ, the junior gold miners ETF, could be on the cusp of another breakout as it resides just 3.2% below its 200-day moving average.
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 bull case for gold could be challenged this year if the Federal Reserve moves forward with plans to boost interest rates multiple times.
“The current short-term trends in the US$ and bond yields also support more gains in the precious metals complex. The US$ index tried but failed to break 103.50 and should test at least 100. It could potentially decline to as low as 97 and test the 200 and 400-day moving averages. Meanwhile, it is no secret that bonds (like Gold) became extremely oversold (and yields extremely overbought),” according to ETF Daily News.
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.
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.
“Strong breadth coupled with continued weakness in the US$ index and bond yields supports more gains in both Gold and the gold stocks. Our targets for the miners remain $25 for GDX and $40 for GDXJ. Those are the strongest and most reasonable targets but $26-$27 for GDX and $41-$42 for GDXJ are possible. Look for Gold to test $1220/oz while maximum upside on this rally is $1250/oz,” reports ETF Daily News.
For more information on the gold market, visit our gold category.