The VanEck Vectors Gold Miners ETF (NYSEArca: GDXJ) and VanEck Gold Miners ETF (NYSEArca: GDX), two of the dominant names among gold miners exchange traded funds, are up an average of about 22% year-to-date. Clearly, higher gold prices are helping mining ETFs, but there are some other favorable factors at play.
GDX is comprised of global gold miners, with a notable tilt toward Canadian and U.S. mining companies. 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 also found greater support from safe-haven demand and a more dovish outlook from major global central banks, notably the Federal Reserve’s shift toward potential interest rate cuts to combat slowing growth. Importantly, miners are proving adept at managing costs.
“Reported global average quarterly all-in sustaining costs were 1% higher than in Q4 2018. Overall, gold producers managed to keep costs under control,” reports Mining.com. “Major gold producers’ global aggregated quarterly operating income followed the gold price and increased by 54%.”
Production Is Declining
Gold output continues faltering, putting further emphasis on miners’ production efficiencies.
“For the Q1 ending March 31, 2019, global reported gold production totalled ~15 Mozt, or down ~11% compared to the previous quarter. Production decreased in all major regions. North America was the largest gold producer (3.8 Mozt), followed by Africa (3.2 Mozt), and Australia & Oceania (2.9 Mozt),” according to Mining.com.
Looking ahead, lingering trade tensions and the Fed’s monetary policy outlook will remain key factors in maintaining the momentum in the gold market.
“Despite quarter-on-quarter decline, Q1 2019 reported gold output was on par with Q1 2018 numbers and this fact – considering the cyclical nature of gold production – gives hope that further in 2019, gold mining industry will be able to at least keep the pace with the previous year,” reports Mining.com.
Most of the big-name components in GDX saw first-quarter production declines.
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