Gold Miners ETFs, Rising Prices, and the Start of Earnings Season

Rising gold prices are supporting miners exchange traded funds, such as the VanEck Vectors Gold Miners (NYSEArca: GDX), and stout third-quarter earnings could be another catalyst for the group.

GDX seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the NYSE® Arca Gold Miners Index®.

The fund normally invests at least 80% of its total assets in common stocks and depositary receipts of companies involved in the gold mining industry. The index is a modified market-capitalization weighted index primarily comprised of publicly traded companies involved in the mining for gold and silver.

“Strong gold prices, rebounding production and hefty margins will buoy third-quarter earnings for precious metals miners and royalty companies, according to analysts,” reports S&P Global Market Intelligence.Canaccord Genuity analysts pointed to stable all-in sustaining costs per ounce of gold amid record-high prices as driving profits.”

Lots to Like with GDX

It’s no secret that gold has been a major beneficiary during the coronavirus pandemic as a viable safe haven asset amid all the uncertainty in the capital markets. But investors don’t actually have to get pure-play gold exposure in order to reap the benefits of the precious metal—enter gold miners.

GDX YTD Performance

Gold certainly had its run during the uncertainty of the Covid-19 pandemic, but as more economies around the world look to return to normal, the precious metal could lose its luster for the rest of 2020. That, however, could pose a buying opportunity for investors looking for gold exposure.

“Meanwhile, the impact of COVID-19 restrictions on gold mining operations largely dissipated in the third quarter, with miners having already restarted most mines after shutdowns earlier in the year, analysts said,” according to S&P Global.

Adding to the case for GDX is improving cash flow for many gold miners, which is the result of not only rising gold prices, but prudent balance sheet management, too.

“With fairly smooth restarts for most of our coverage companies following COVID-related shutdowns earlier this year, we are expecting most of our companies to report stronger q/q production and free cash flows amid record gold prices,” according to Scotiabank analysts.

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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.