Gold stands not only as one of this year’s best-performing commodities but one of the top performers among asset classes. As such, miners are getting in on the act as highlighted by a year-to-date gain of more than 20% for the VanEck Vectors Gold Miners (NYSEArca: GDX).
GDX, the largest ETF in this category, 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 the long-term average, and rising M&A are all supportive of the miner’s space as well, but those fundamentals could be glossed over if the dollar strengthens.
Some market observers believe the miners’ rally has plenty of life in it.
Looking at the NYSE Arca Gold Miners Index, the “monthly closing chart shows a decisive breakout from a four-year base last month when it hurdled 965. Before last month’s breakout, a trendline dating back to 2009 had been a formidable barrier,” reports Andrew Addison for Barron’s.
As the coronavirus outbreak continues to be the wild card in the markets, the safe haven of precious metals is in high demand, especially for exchange-traded funds (ETFs) that are backed by gold. ETFs have been stockpiling gold as more coronavirus news continues to invade the financial markets.
“Second and more exciting, the Gold Miners index is poised to outperform the S&P 500 by 25% to 40% by year-end,” according to Barron’s. “Having gained the support of its various moving averages, the underlying base provides powerful support for the advance.”
With the federal government stepping in to help shore up the economy, it might seem like gold gains could be tamped own. However, some market experts predict that the U.S. economy will be tested in the coming months, potentially further boosting bullion and ETFs. Some interesting historical data bode well for more near-term GDX upside.
“Why would gold-mining stocks outperform the stock market by such a wide margin? The Federal Reserve has been pumping liquidity into the economy at a rapid clip. Since last August, the Fed’s balance sheet has surged almost 80%. And the stock market’s technical condition is weakening and projecting lower prices,” notes Barron’s.
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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.