The VanEck Vectors Gold Miners ETF (NYSEArca: GDXJ) and VanEck Gold Miners ETF (NYSEArca: GDX), two of the dominant names among gold miners exchange traded funds, are up an average of 12.7% this month, but some market observers believe more upside could be in the cards for these funds if US/China trade talks progress.
Gold has also found greater support from safe-haven demand and a more dovish outlook from major global central banks, notably the Federal Reserve’s shift toward potential interest rate cuts to combat slowing growth.
“Metal prices and mining equities have been at the mercy of trade headlines all year, and business fundamentals have a taken a back seat,” reports Mining.com. “To be sure, easier central bank policies around the world have helped some metals, especially gold and silver. But a resolution of the trade tension between U.S. and China — or at least some steps to bring down the temperature — could prove the ultimate catalyst for the metals and mining complex.”
Go For The Gold
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
“Gold had a blockbuster start to the summer owing to expectations of a U.S. Federal Reserve rate cut, while base metals investors stayed cautious due to the potential impact of disputes on the commercial demand for metals,” according to Mining.com. “That’s led some industry analysts to ratchet up their preference for gold in the second half and into 2020 while remaining cautious on the base metals outlook.”
Gold prices have been steady this year amid expectations for a weaker U.S. dollar and that the Federal Reserve will slow its pace of interest rate increases. Those scenarios are benefiting gold miners and ETFs such as GDX and GDXJ.
“The supply and demand outlook for base metals is relatively tight, which means a healthy market for miners, according to a report from RBC’s Mining & Materials Equity Team,” notes Mining.com. “The outlook for gold in the near-term has improved due to expectations for lower rates, but there’s also risk to precious metals if geopolitical tensions in the Persian Gulf subside, the team said.”
For more information on the precious metals market, visit our precious metals category.