With gold ranking as one of this year’s best-performing assets, it’s not surprising that miners and the related ETFs are in grooves of their own. Just look at the VanEck Vectors Gold Miners (NYSEArca: GDX), the largest fund in the category.
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 the long-term average, and rising M&A are all supportive of the miner’s space as well, but those fundamentals could be glossed over if the dollar strengthens.
Buoyed by investors’ thirst for safe-haven assets, gold is soaring and GDX is going along for the ride as highlighted by a year-to-date gain of almost 16%.
“Investors shouldn’t take GDX’s upside to this point in 2020 for granted because, as history shows, the relationship between spot gold prices and miners’ equity prices isn’t always perfect,” reports InvestorPlace. “That is to say there are years when gold rises and GLD sharply outperforms GDX. Additionally, there have been years in which gold traded lower with GDX, substantially overshooting to the downside.”
GDX Catalysts
As the coronavirus outbreak continues to be the wild card in the markets, the safe haven of precious metals is in high demand, especially for exchange-traded funds (ETFs) that are backed by gold. ETFs have been stockpiling gold as more coronavirus news continues to invade the financial markets.
Analysts see a bright future for the shiny metal, especially in the ETF domain, where a flight to safety may soon take center stage once again, as overbought stocks continue to outpace the deteriorating economic backdrop due to the coronavirus pandemic.
“Another fact highlighting the notion that investors are missing out with GDX this year is that gold miners’ balance sheets are increasingly sturdy and due to low energy costs, production expenses are decreasing,” according to InvestorPlace.
With the federal government stepping in to help shore up the economy, it might seem like gold gains could be tamped own. However, some market experts predict that the U.S. economy will be tested in the coming months, potentially further boosting bullion and ETFs. Some interesting historical data bode well for more near-term GDX upside.
“Remembering that bullion disappointed during the March equity meltdown caused by the novel coronavirus pandemic, the rally in gold, assuming it started April 1, is actually new,” reports InvestorPlace. “History bodes well on that front because, as history suggests, the last five gold recovery cycles lasted an average of 26 months, perhaps implying the yellow metal is in the early stages of what could be a lengthy bull market.”
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
