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It's Not Surprising What's Boosting Gold Miners ETFs

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May 5, 2016 1:35 pm
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It's Not Surprising What's Boosting Gold Miners ETFs

This is how things are going for gold exchange-traded funds this year. Physically-backed ETFs, such as the SPDR Gold Trust (ETF) (NYSE: GLD), have been good. Gold mining ETFs have been better. A lot better. For example, the Market Vectors Gold Miners ETF (NYSE: GDX), is up 73.1 percent year-to-date, a performance that is about three and a half times better than GLD's performance.

Further underscoring the strength of gold miners ETFs this year is this anecdote: Of the top 11 non-leveraged ETFs on a year-to-date basis, nine are either gold or silver miners ETFs. Of the remaining two ETFs, one is a mining and materials fund heavy on gold miners. The other is the iShares MSCI All Peru Capped Index Fund (NYSE: EPU). Peru is a major producer of gold and one of the world's largest silver-producing countries.

Also on that list is the iShares MSCI Global Gold Miners ETF (iShares Inc. (NYSE: RING)), which is higher by a dumbfounding 86.13 percent this year.

Related Link: Poll: Analysts See More Upside For Gold, Silver

Where This Success Originates

Sometimes, investors are obsessed with the “why” behind big moves, such as those being notched by ETFs like RING. Fortunately, the answer is not hard: Thank global central banks, including the Federal Reserve.

“At the same time, gold has benefited from central bank policies and the level of real interest rates (in other words, the interest rate after inflation.) According to Bloomberg data, gold has typically performed best in environments in which real interest rates were low to negative […] We are seeing stark examples of this with the current environment of negative interest rates in Japan and many parts of Europe,” said BlackRock in a recent note.

Last month, the Federal Reserve opted against boosting interest rates, leaving many market participants feeling that the odds of the central bank raising borrowing costs four times this year, as many thought would be the case heading into 2016, are rapidly dwindling.

The $125.5 million RING devotes over 24 percent of its combined weight to just two stocks – Barrick Gold Corporation (USA) (NYSE: ABX) and Newmont Mining Corp (NYSE: NEM). However, there is more to the story with gold miners and the relevant ETFs.

The Story Continues

“The MSCI Global Gold Miners Index has rallied an incredible 76 percent this year, but much of the performance is due to the recovery in valuations: According to Bloomberg data, gold miner stocks were battered last year, with the index down 45 percent from its 2015 high. Now the stocks are not as attractive. At the same time, real rates have historically had little to no impact on equity returns,” according to BlackRock.


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