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.
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.
“Investors apparently are still relatively bullish on the sector, pouring money into the funds. The large-cap fund drew inflows of $769 million over the past month, bringing its year-to-date flows to $1.12 billion. The Junior fund has attracted inflows of $1.29 billion thus far in 2017 and $416 million over just the past month,” according to MarketWatch.
Aggressive traders willing to bet on more declines for gold miners can consider the Direxion Daily Gold Miners Bear 3X Shares (NYSEArca: DUST) and the Direxion Daily Junior Gold Miners Index Bear 3X Shares (NYSEArca: JDST).
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.
For more information on the gold market, visit our gold category.