Market Overview

A Golden Idea Among Gold ETFs

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A Golden Idea Among Gold ETFs

In the commodities complex, gold is one of this year's big stories, one that's, of course, trickling down to exchange-traded funds. For example, the SPDR Gold Shares (NYSE: GLD), the world's largest gold-backed ETF, is up 28.19% year-to-date.

What Happened: What's good for gold is usually good for miners and what's good for the miners usually matriculates down to their small-cap brethren. Check out the VanEck Vectors Junior Gold Miners ETF (NYSE: GDXJ), which is higher by 41.13% year-to-date.

The $6.6 billion GDXJ, which tracks the Global Junior Gold Miners Index and holds 84 stocks, could continue standing as one of the preferred ways to play the yellow metal.

Why It's Important: Historically, gold performs modestly when a Democrat is in the White House, the scenario investors will be seeing in the new year. Then there's speculation about rising inflation and dollar-destructive deficit spending, both of which should be constructive for gold and miners.

Still, some market observers see a murky near-term outlook for bullion while remaining bullish on miners.

See Also: Should You Invest In Gold Right Now?

“Most believe gold and silver can perform with this market backdrop. Market agents are trying to marry a chart to an upside price fantasy,” said Rareview Macro founder Neil Azous in a recent note. “We highlight this because precious metal spot prices typically form patterns that help identify large potential moves. Currently, we see no continuation pattern that is recognizable on a chart.”

What's Next: GDXJ does have some tailwinds, including rising momentum for smaller stocks and faint hopes that the dollar will strengthen anytime soon. Additionally, miners aren't just benefiting from higher gold prices. The industry is reining in costs and strengthening balance sheets, increasing the allure of GDJX for near- to medium-term investors.

And for those that need a little more coaxing, Azous points out GDXJ's technical situation is somewhat attractive.

“If you must add new exposure, we would instead add junior miners than spot gold,” he said. “While we are not fans of diagonal patterns, we would note that the junior gold miners (GDXJ) broke out of a downtrend channel on a weekly closing basis.”

Data indicate some investors are willing to side with GDJX. In the third quarter, the ETF hauled in over $310 million in new cash.

 

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