Expect a Bumpy Ride for Gold Miners ETFs

The VanEck Vectors Gold Miners ETF (NYSEArca: GDX) and the VanEck Vectors Gold Miners ETF (NYSEArca: GDXJ), the two largest gold miners exchange traded funds, are up an average of almost 11% over just the past week.

That is encouraging after the recent weakness experienced by gold mining stocks, but investors should remember this can be a volatile industry and some market observers believe gold miners will remain volatile for the foreseeable future.

“Gold is down 4.5% over the past two weeks and we see signs that investors are concerned about further risks/volatility in the commodity,” said Katherine Fogertey, a Goldman Sachs options strategist, in a note. “Our model, which is based on the relationship between the performance of gold and gold miners, suggests that gold miners, while lower over the past two weeks, do not yet reflect the full extent of the weakness in gold.” That note was posted as part of a piece on miners by Ryan Vlastelica of MarketWatch.

Importantly, gold traded higher Wednesday after the Federal Reserve unveiled its first interest rate hike of 2017. That could prove to be an encouraging sign for precious metals investors.

Stock fundamentals like cost deflation across the mining industry, share valuations below long-term average and rising M&A are all supportive of the miners space as well, but those fundamentals could be glossed over if the dollar strengthens.