Precious Metals, Miners ETFs Surge on Safety Trade | ETF Trends

Precious metals mining stocks and sector-related ETFs surged as gold prices strengthened and investors look toward attractive areas in the late market cycle.

Among the best performing non-leveraged ETFs of Tuesday, the ETFMG Junior Silver Miners ETF (NYSEArca: SILJ) advanced 4.9% and Sprott Junior Gold Miners ETF (NYSEArca: SGDJ) increased 4.7%. The large-cap VanEck Gold Miners ETF (NYSEArca: GDX) gained 3.2% while the silver miner-focused Global X Silvers Miners ETF (NYSEArca: SIL) advanced 3.1%.

Meanwhile, the SPDR Gold Shares (NYSEArca: GLD) was up 1.5% as Comex gold futures rose 1.7% to $1,344.5 per ounce, and the iShares Silver Trust (NYSEArca: SLV) was 1.2% higher as Comex silver futures increased 1.5% to $15.98 per ounce.

More investors are looking to the precious miners sector as a late cycle play. A number of big names, like quants at Bernstein to Pictet’s multi-asset team, have grown increasingly bullish on this market segment as late-cycle concerns and industry shifts support bets for a prolonged rally, Bloomberg reports.

“One of the key strategic themes that underlies our outlook is that we think there is a low return outlook across asset classes,” Bernstein strategists wrote last week. “The practical issue of holding gold is the lack of yield, or an ability to value it in a conventional way. So for portfolio managers of equity and multi asset portfolios an attractive alternative might be to hold the equity of gold miners.”

Pictet Asset Management also argued that merger and acquisition activity suggests the industry itself is bullish.

“When miners start acquiring each other, this suggests the market is underpricing the value of their assets, namely the gold they’ve yet to mine,” Shaniel Ramjee a senior investment manager in the Pictet multi asset team wrote in a note.

“Not only are gold miners’ stocks attractively valued relative to their reserves and the price of bullion, but also compared with the materials sector as a whole and with global equities in general,” Ramjee added.

Historically, mining shares have outpaced gold prices during a broad rally. Over the past 10 years, miners traded with a correlation of 0.8 and a beta of 1.8 compared to gold, so the two moved in lockstep with miners generating a return about 80% larger.

Gold prices climbed Tuesday to their highest level in almost 10 months Tuesday on safe-haven buying as investors tracked trade talks and European political risks. Traders have been looking to gold to hedge risks and slowing global growth, and the precious metal has grown more attractive relative to yield-bearing conservative bets like Treasuries when rate expectations moderate.

For more information on the precious metals market, visit our precious metals category.