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Gold Mining ETFs Surging on Weak Jobs Data

Gold Mining ETFs Surging on Weak Jobs Data
April 08
07:35 2015

While gold prices were off to a great start in 2015 on increased market volatility and heightened uncertainty, it lost its allure in late January on a combination of factors. These include the prospect of an interest rates hike, a strengthening dollar, low inflation, the growing U.S. economy, slowdown in China and weakness in Europe, Japan and other key emerging markets.

Yet again, the demand for yellow metal seems have returned with the start of the second quarter on disappointing economic data and a firming dollar. This is especially true as key products like GLD, IAU and SGOL added 2.7% each over the past three trading sessions. In fact, with the recent gains, these products are clearly outpacing the equity market funds like SPY by wide margins from a year-to-date look.

While these performances have been good, events have been even better in the gold mining ETFs’ space. Acting as a leveraged play on underlying metal prices, metal miners tend to experience more gains than their bullion cousins in the rising metal market.

Behind The Surge

The latest driver for gold was the weak U.S. job data, which showed that the economy added only 126,000 jobs last month, well below the expectation of 245,000 as per the Reuters poll. The number marks the lowest reading since December 2013. The gloomy number has raised speculation that the Fed would further delay interest rates hike.

In the latest FOMC meeting in March, the Fed lays the foundation for the first interest rate hike in the U.S. since 2006 by dropping the word ‘patient’ in describing its approach to rate hikes but provided a cautious outlook on inflation and economic growth. This suggests that the interest rate hike is unlikely until later this year and that the near-zero interest rate policy will stay in place for longer than expected.

Apart from this, U.S. stocks appear expensive at current levels on many metrics, compelling investors to choose risk-off trades.

Gold Mining ETFs in Focus

In this backdrop, we have highlighted three of the most popular choices in the space, any of which could be interesting picks for investors seeking to get in on the sector’s sudden upswing. Further, these products have been leading the gold miner space higher since the start of April and will likely to do so in the coming weeks if the current trends persist.

Market Vectors Junior Gold Miners ETF (GDXJ)

This product targets the small cap segment of the gold mining industry by tracking the Market Vectors Global Junior Gold Miners Index. Holding 66 securities in the basket, the fund is widely spread across a number of securities with each accounting for less than 5.3% share. Canadian firms take the lion’s share at 59.1%, though Australia (15.3%) and the U.S. (12.1%) round out the top three.

The fund is rich with AUM of $1.7 billion and average daily volume of more than 16.8 million shares a day. It charges 57 bps in fees per year from investors. The product has gained 9.6% since the start of the second quarter.

Global X Gold Explorers ETF (GLDX)

The ETF provides global exposure to the small basket of 23 gold mining firms by tracking the Solactive Global Gold Explorers Index. The product is highly concentrated on the top firm – Gold Canyon – making up for 9.8% of total assets. Other firms hold less than 5.9% share in the basket. Canadian firms dominate the fund’s return at 85% while the rest is evenly split between the U.S., United Kingdom and Australia.

The fund has amassed $29.7 million in its asset base and sees light volume of roughly 33,000 shares per day on average. Expense ratio came in at 0.65%. The product added 8.7% in the first three days of April.

Market Vectors Gold Mining ETF (GDX)

This is the most popular and actively traded gold miner ETF with AUM of $5.9 billion and average daily volume of around 55.3 million shares. The fund follows the NYSE Arca Gold Miners Index, holding 40 stocks in its basket. Canadian firms account for 56.3% of the assets, followed by the U.S. (14%) and South Africa (11.1%).

The product has some concentration issues, as it allocates over one-fifth of its assets to the three biggest holdings – Goldcorp (GG), Barrick Gold (ABX) and Newmont Mining (NEM). The fund charges 53 bps in annual fees and is up 8% since the start of second quarter.

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Bottom Line

The bullish trend for gold mining ETFs could continue in the weeks ahead if more weak economic data comes through, the Fed signals any further rate hike delays, or some political issue creeps in. Any of the above products could make for an interesting choice with a belief the “trend is your friend” in this corner of the investing world.

Source: Sweta Killa

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Sweta Killa

Sweta Killa

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