Market Overview

Gold Isn't The Only Reason This Miners ETF Is Soaring

Gold Isn't The Only Reason This Miners ETF Is Soaring

Some commodities are getting absolutely wrecked this year, but that's not the case with gold. When gold glitters, it has a tendency to overshadow other precious metals, as it's doing this year.

What Happened

The VanEck Vectors Junior Gold Miners ETF (NYSEARCA: GDXJ), one of the largest exchange traded funds in this category, is sporting a second-quarter gain of almost 22%. Given the ETF's name, it would be reasonable to assume that gold is power this ETF higher, but there's more to the story.

As noted above, gold overshadows silver, but the Aberdeen Standard Physical Silver Shares ETF (NYSEARCA: SIVR) is higher by more than 16% over the past month and that's helping GDXJ.

Why It's Important

GDXJ's underlying index tracks “the overall performance of small-capitalization companies that are involved primarily in the mining for gold and/or silver,” according to VanEck.

The emphasis is on silver, as GDXJ's silver miners exposure is proving useful.

“Silver performance has lagged gold for a number of years, driving the gold/silver ratio to an all-time high of 123 in March,” VanEck said in a recent note.

“Silver mounted a comeback in May, gaining 18.3%, amid some of the strongest inflows into silver bullion exchange-traded funds since their inception. Silver might see further gains as it is still underperforming gold by 14% this year and the gold/silver ratio remains at 97, far above the five-year average of 80.”

Many of GDXJ's top 10 holdings, which combine for 45.45% of the fund's roster, produce silver in addition to gold and some of the fund's holdings are dedicated silver miners.

What's Next

Obviously, GDXJ is a small-cap fund, and as is the case with small caps, it's been lagging its large-cap counterparts.

If small-cap stocks are showing plenty of signs of life, that could facilitate a another move higher in GDXJ.

“In a bull market, large-cap companies typically move first, followed by stronger performance by mid-tiers and juniors as the market advances,” according to VanEck.

“The lag in performance between the large and smaller companies is normally measured in weeks.  However, after a year we are still waiting for the smaller companies to outperform. Since gold broke out on June 20, 2019, the GDM, which is heavily weighted majors (66% as of the end of May), has gained 45.6%. The MVGDXJ, with an 87% combined weight in mid-tiers and juniors, has failed to outperform, gaining 44.4% over the same period. Investor sentiment has remained low so far in this cycle. We believe this is finally beginning to change, as shown by the 7.0% outperformance of MVGDXJ in May.”


Related Articles (GDXJ + SIVR)

View Comments and Join the Discussion!

Posted-In: Long Ideas News Sector ETFs Small Cap Analysis Commodities Small Cap Markets Trading Ideas Best of Benzinga