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.
“The mining stocks have fallen below their 50 and 200-day moving averages and are even struggling around their 400-day moving averages (which provided support in December 2016) but this does not threaten the epic 2015-2016 bottom. There are a plethora of valuation metrics from January 2016 that are unlikely to be seen again. That time marked the worst 5 and 10-year rolling performance for gold stocks in 90 years,” 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.
For more information on the gold market, visit our gold category.