The VanEck Vectors Gold Miners ETF (NYSEArca: GDX) and the VanEck Vectors Junior Gold Miners ETF (NYSEArca: GDXJ), the two largest gold miners exchange traded funds, are off an average of 14% over the past year and recently saw some of the largest outflows on record.
A contrarian point of view indicates this could be the time to look at GDX and GDXJ when the ETFs are out of favor with some market participants. 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.
“The long-term trend since the highs in 2011 is down (lower highs and lower lows). The 15-month trend appears to be higher, as GDX has created a series of higher lows, since early 2016,” reports ETF Daily News. “GDX is testing 1-year rising support, which could be support of a bullish ascending triangle pattern. Two thirds of the time, this pattern suggest higher prices.”
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.
As ETF Trends noted last month, GDXJ’s underlying index is undergoing some significant changes after the ETF became one of the largest shareholders in several of it holdings.
From April 26 through May 2, GDX and GDXJ lost nearly $1.4 billion in assets combined. No ETF saw larger outflows over that period than did GDX. Year-to-date, GDX has lost nearly $309 million in assets while GDXJ has added nearly $860 million in new assets.
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.