Traditional gold-backed exchange traded funds are up 8% this year, but gold miners ETFs are lagging.
For example, the VanEck Vectors Gold Miners ETF (NYSEArca: GDX), the largest exchange traded fund dedicated to gold mining stocks, is up just 4% year-to-date while the VanEck Vectors Gold Miners ETF (NYSEArca: GDXJ) is lower by more than 3%.
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.
“Many mining companies were able to put in strong corporate performance and generate cash relative to the gold price. Gold did better in the face of a strong U.S. dollar than many believed and has outperformed the gold equities. This coupled with good corporate performance, and low expectations will likely lead equities higher in 2018,” according to ETF Daily News.
The yellow metal has recently been pressured by, among other forces, a slight uptick in the previously sliding U.S. dollar and expectations that the Federal Reserve will raise interest rates for the third time this year at its December meeting.
Gold has enjoyed greater demand in a low interest-rate environment as the hard asset becomes more attractive to investors compared to yield-bearing assets. However, traders lose interest in gold when rates rise since the bullion does not produce a yield. Interest rates remain low in many developed markets and some emerging markets have been rapidly lowering borrowing costs this year.
GDX has lost $2.4 billion in assets this year, a total surpassed by just one other ETF. Conversely, investors have added $1.1 billion to GDXJ.
Popular leveraged gold miners ETFs include the Direxion Daily Junior Gold Miners Index Bull 3x Shares (NYSEArca: JNUG), the triple-leveraged answer to the popular GDXJ. The Direxion Daily Gold Miners Bull 3X Shares (NYSEArca: NUGT) is JNUG’s large-cap counterpart.
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