Market Overview

Reasons Why This Gold Miners ETF Can Keep Soaring

Reasons Why This Gold Miners ETF Can Keep Soaring

Count the Sprott Gold Miners ETF (ALPS ETF Trust (NYSE: SGDM)) among this year's high-flying gold miners exchange-traded funds. SGDM, which is just a few days shy of its second anniversary, is up more than 114 percent year-to-date.

Hooray For Gold

SGDM's underlying index “seeks to emphasize gold stocks with the highest quarterly revenue growth measured on a year-over-year basis and stronger relative balance sheets as measured by long-term debt to equity,” according to Sprott.

“The Index aims to track the performance of large to mid-capitalization publically traded gold companies that are listed on major U.S. exchanges. The Index uses a transparent, rules-based methodology that is designed to identify 25 gold stocks with the highest historical beta to the spot price of gold, with each stock’s weighting in the Index adjusted based on its quarterly revenue growth on a year-over-year basis and the quality of its balance sheet, as measured by long-term debt to equity,” according to a statement issued by Sprott.

Related Link: No Second-Place Medal For This Silver ETF

The Fed's Influence

Although it appears unlikely the Federal Reserve will raise interest rates this month, the Fed is intent on boosting borrowing costs. Even it does, U.S. interest rates will still be nowhere to close to historical norms, indicating any punishment delivered to gold ETFs in the wake of rate hikes could be short-lived. Additionally, it looks like NIRP will remain throughout much of the developed world.

That is one of the many catalysts for gold. Sprott highlights several more, including financial improvements for many of the miners.

“During the recent gold bear market, gold companies have reduced their operating costs and capital expenditures. All-in sustaining cash costs have declined by 26 percent, from $1,265 per oz. in Q3 2012 to $936 per oz. in Q4 in 2015,” according to Sprott research.

Gold offers further enticement as a whopping $8 trillion in global investment-grade sovereign debt currently sports negative yields, meaning investors that make those bets will lose money. The World Gold Council adds 40 percent of global sovereign debt sports yields below 1 percent.

Even after delivering stellar year-to-date performances, gold miners, broadly speaking, are not richly valued.

“Despite the rally in 2016, valuations of gold miners relative to the price of gold are at the lowest they’ve been in 15 years. Compared to their gold reserves, miners are 19 percent cheaper than a year ago,” added Sprott.


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