Gold Miners Beckon, Is It Time To Answer?

By Todd Shriber via

Gold-related investments are disappointing investors in 2018. A strong dollar coupled with three interest rate increases by the Federal Reserve are among the factors hampering the yellow metal.

As of Oct. 10, 2018, the largest exchange traded fund (ETF) backed by physical holdings of gold is down 8.94% on a year-to-date basis. That spells bad news for shares of gold miners and related funds. Gold miners can overshoot the losses of spot gold and physical gold funds and that is happening this year. The NYSE ARCA Gold Miners Index is lower by 20.87% as of Oct. 10, 2018.

Simply put, betting against bullion and gold miners in 2018 has been easy and rewarding. Thing is easy, crowded trades do not stay that way forever and data suggest the bearish gold trade is indeed crowded. Some fundamental factors, including inexpensive valuations and the potential for an uptick in industry consolidation, could form the foundation of a miners rebound.

Fundamental Factors

Some analysts cite an array of sound fundamentals as reasons to consider gold miners exposure over the near-term.

“Although there is little evidence that inflation is accelerating (as of now) or that the end of this bull market is imminent, we argue that gold miners should be given a larger weight in investors’ portfolio for the following reasons: i) the economic cycle continues to mature; ii) asset valuation multiples are expanding and asset bubbles are emerging in certain areas; iii) budget deficits are increasing at alarming rates; and iv) quarterly earnings will face tougher comps in 2019, bringing into question how much longer this record-breaking bull market can continue,” said CFRA Research equity analyst Matthew Miller.1

Investors with a near-term view of miners may want to consider the heavy net short positioning in gold. For the week ending Sept. 25, 2018, professional traders’ net short position in gold futures was a record 83,677 contracts.

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