The VanEck Vectors Gold Miners ETF (NYSEArca: GDXJ), one of the largest gold miners exchange traded funds, is up more than 8% month-to-date, but some market observers believe there is plenty of value left in the resurgent gold miners group.
The VanEck Gold Miners ETF (NYSEArca: GDX), the largest gold miners ETF, is up more than 12% this month.
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.
“If you look at the GDXJ [VanEck Vectors Junior Gold Miners ETF] and go back to 2010, the adjusted return in Canadian dollars is down about 85%. Then if you look deeper … at the really junior juniors, which aren’t even in these ETFs, it’s even more so. We have an industry where you’ve lost 80% to 90% of the value—plus,” said Jonathan Goodman, executive chairman of Dundee Corp., in an interview with Kitco News.
Scenarios Benefitting GDX and GDXJ
Gold prices have been steady this year amid expectations for a weaker U.S. dollar and that the Federal Reserve will slow its pace of interest rate increases. Those scenarios are benefiting gold miners and ETFs such as GDX and GDXJ.
Bullion prices are inching closer to their loftiest levels this year on increased expectations of a U.S. rate cut, even as some investors locked in profits from bullion’s recent rally. Gold is believed by many investors to be inversely correlated with interest rates. Rising interest rates make bonds and other fixed-income investments more attractive, so money will flow into higher-yielding investments, such as bonds and money market funds, and out of gold, which offers no yield at all during times of higher interest rates, and back into gold ETFs.
“On making the right investment choices, Goodman said that only about 25% to 30% of producing mines make money, so it is important to dive deep into the geology of the mines’ deposits to accurately determine value,” according to Kitco. “Goodman said that all commodities look attractive right now.”
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