The VanEck Vectors Gold Miners ETF (NYSEArca: GDX), the largest exchange traded fund dedicated to gold mining stocks, is once again attracting investors.
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.
“Investors piled into VanEck’s Vectors Gold Miners exchange-traded fund last week to the tune of $529 million, the most since September 2013. The ETF holds shares of mining companies including Newmont Mining Corp. and Barrick Gold Corp. Gold meanwhile rallied after two weeks of declines,” reports Bloomberg.
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 since last year.
The $7.4 billion GDX tracks the NYSE Arca Gold Miners Index and holds 51 stocks. Newmont Mining (NYSE:NEM), Barrick Gold (NYSE:ABX) and Newcrest Mining combine for nearly 23% of the fund’s weight.
Inflation could serve as a catalyst for the yellow metal and for gold-related ETFs. By some metrics, the Fed has under-estimated U.S. inflation, which could prove beneficial to gold because the yellow metal is historically a popular inflation fighter.
The U.S. Dollar Index is already down more than 2% to start 2018 after tumbling 9.1% last year. Other catalysts are supporting gold upside as well.
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.
For more information on the gold market, visit our gold category.