VanEck Vectors Gold Miners
VanEck Vectors Gold Miners
IBD Stock Analysis
- Gold miners stock ETF clears 29.97 buy point
- GDXJ ETF, which holds smaller gold miners, is on IBD SwingTrader
- Gold prices hitting multi-year highs amid coronavirus concerns.
Industry Group Ranking
Cup with Handle
* Not real-time data. All data shown was captured at
3:00PM EST on
The VanEck Vectors Gold Miners ETF (GDX) is the IBD Stock Of The Day. GDX hit a buy point on Friday as worries over the coronavirus outbreak sent the spot gold price to a seven-year high.
The GDX gold stock ETF tracks the shares of well-established gold miners, which get a boost to the bottom line as the gold price exceeds their operational costs. The gold price rose 1.5% to $1,644 an ounce on Friday, bringing its weekly gain close to 4%.
Investors are taking a shine to gold for its safe-haven status in uncertain economic times. The rise has come as coronavirus cases rise outside of China. On Friday, purchasing managers surveys compiled by IHS Markit showed business activity declining in the U.S. and Japan. Meanwhile, South Korea reported that exports from China plunged 19% in the Feb 1 to Feb. 20 period vs. a year ago.
Top holdings of the VanEck Vectors Gold Miners ETF at the end of January included Newmont Mining (NEM), Barrick Gold (GOLD), Franco-Nevada (FNV), Royal Gold (RGLD) and Kirkland Lake Gold (KL).
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Franco-Nevada and Royal Gold are gold royalty companies, which provide financing to gold miners, typically in exchange for below-market-cost purchase rights of gold they produce. Franco-Nevada was the IBD Stock Of The Day on Dec. 24, and it has continued to surge higher.
The gold stock ETF offers a broader way to play the sector than individual stocks. Buying individual companies exposes investors to greater upside and downside potential, if those companies encounter operational difficulties or make a new gold discovery, for example.
The VanEck Vectors Junior Gold Miners ETF (GDXJ) is composed of small-cap gold and silver miners, including Sibanye Gold (SBGL) and Pan American Silver.
There’s some overlap between the GDX ETF and the GDXJ ETF. Both portfolios included Kinross Gold (KBC) stock as a top holding.
IBD’s SwingTrader added VanEck Vectors Junior Gold Miners ETF this week. SwingTrader helps investors take advantage of short-term market swings using IBD investment rules.
GDX ETF Chart
The VanEck Vectors Gold Miners ETF rose 3% to 30.65, clearing a cup-with-handle buy point at 29.97.
The gold stock ETF offers investors a chance to gain if the coronavirus proves disruptive to the global economy, with less downside than chasing higher-flying individual gold stocks. Franco-Nevada stock, Barrick Gold stock and Newmont stock each are well extended from buy points.
Yet it’s worth noting that there are some underperforming gold stocks in the GDX bunch. That’s why the GDX ETF is still just below its recent peak in September, while the GLD ETF that tracks the gold price has climbed to a seven-year high.
Newmont stock outperformed this week, after it reported better-than-expected fourth quarter earnings. But Kirkland Lake stock, a sector leader until last fall, lost ground on the week as analysts reined in their expectations.
On the plus side, the GDX gold miners ETF avoids company- or stock-specific risks.
The relative strength line, or RS line — the blue line on the GDX ETF chart — shows that the gold stock ETF has underperformed the S&P 500 since early September.
The GDXJ gold stock ETF rose 2.6% to 44.91. The GLD gold price ETF advanced 1.5% to 154.70.
Buy Gold Or Gold Stocks?
The GLD ETF that tracks gold just cleared the 5% chase zone above its buy point. That creates a bit of extra risk that a near-term price drop could shake new purchasers out of their position. But trading ETFs is different from trading stocks.
Typically, when the gold price rises, gold stocks do even better. From the gold price bottom in late 2015 through June 2019, the SPDR Gold Shares ETF tracking the commodity’s price rose 31%. Meanwhile, the VanEck Vectors Gold Miners ETF rose 93% over the same span.
Yet, the opposite is also true. When the gold price falls, miners tend to do even worse.
The good news for gold ETF and gold stock investors is that the price of gold is supported by low real interest rates. As long as that holds true — and the Fed thinks it will — then the opportunity cost of holding gold will be low relative to holding risk-free Treasurys.
Fed policymakers now think too little inflation, not too much, is the overriding concern. If they’re right, real interest rates, the biggest factor influencing gold prices, can remain supportive even as the global economy improves.
What if the Fed is making a mistake, and inflation has a resurgence? Well, that also might work out pretty well for gold investors. Institutional investors like gold as a hedge against inflation and uncertain times. After all, gold has proved its ability to hold value over centuries.
As the dollar loses value, gold gains. Lately, though, the dollar has been strong. That may be because the U.S. has been less exposed to the coronavirus than other major economies, including Japan. If the threat abates, the dollar’s gains could unwind, limiting gold’s downside.
Please follow Jed Graham on Twitter @IBD_JGraham for coverage of economic policy and financial markets.
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