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Gold peaked to a six-week high earlier this month, triggered by disappointing U.S. jobs data. Further, terrorist attacks in London ahead of the U.K election have given a boost to gold prices. The most anticipated Bureau of Labor Statistics (BLS) monthly non-farm payroll numbers revealed that 138000 new jobs were created in May 2017, much below economists’ expectations of 184,000. The unemployment rate declined to 4.3% — the lowest in 16 years. Figures for March and April were also revised to show that 66,000 less jobs were created than expected, indicating that the labor market may be losing momentum. Average hourly earnings grew 2.5% year over year, which was another disappointing figure. (Read: Forget Gold, Palladium ETF is Shining the Brightest)
Gold investors were jittery before the much-awaited Fed meeting on Jun 14, in anticipation of an interest rate hike for the second time this year. The key interest rate was hiked to 1.00-1.25% from 0.75-1.0% set in Mar 2017. Policymakers reiterated their projections of one more rate hike this year, followed by three hikes each in 2018 and 2019. This move, followed by encouraging data on U.S. initial jobless claims, prompted a rebound in dollar and pushed gold prices to 3-week lows. Nevertheless, gold is up 9% so far this year.
The U.S. dollar has a close inverse relationship to commodity prices and gold. Considering that gold is not yield-producing and investors have to rely on price appreciation for returns, the yellow metal normally has a strong inverse correlation to inflation-adjusted interest rates. Gold traditionally is also viewed as a hedge against inflation. (Read: Gold ETFs Tussle Between Politics and Fed)
The uncertain political climate both in the UK and the United States is negatively impacting currencies and concerns over the fragility of both the economy and geopolitical tensions will keep the safe haven demand for gold up.
Macroeconomic trends in Asia will support economic growth in the coming years. Given that gold demand is generally closely correlated to increasing wealth in the continent, the commodity should be on fire. Asia mostly sees retail demand for the metal due to festival and wedding related buying activities in countries like India and China. (Read: Hot Housing ETFs to Buy Now)
While demand will remain strong, supply of this precious metal has already attained peak levels as per reports. Lower gold prices in the past few years had restricted the ability of gold producers to invest in new projects. There are few new projects and expansions anticipated to commence production this year. Further, those in the near-term pipeline are generally fairly modest in scale. Thus, global mine supply is in danger of trickling down. The combination of lower mined gold supply and higher demand could eventually help prices navigate north.
ETFs to Tap the Sector
The rally in the commodities may have lifted share prices of gold mining companies but investing in ETFs that track physical gold is a better way to invest in the metal. Below, we highlight the ETFs in this sector in greater detail for those seeking opportunities to make a gold-mining ETF play at this time.
GDX has assets under management worth $8.7 billion and a three-month trading volume of roughly 58,139,544 shares. The fund charges an expense ratio of 51 basis points (bps) a year with a dividend yield of 0.27%.
The ETF tracks the NYSE Arca Gold Miners Index, which provides exposure to publicly traded companies worldwide that are involved primarily in gold mining, representing a diversified blend of small, mid and large-capitalization stocks. The fund has invested 58% of the asset base in the top 10 holdings.
Among individual holdings, the top stocks in the ETF include Barrick Gold Corporation (ABX), Newmont Mining Corporation (NEM) and Newcrest Mining Limited (NCMGY), with asset allocation of 9.61%, 9.27% and 6.57%, respectively.
Another popular choice in the gold miners ETF market is GDXJ, a fund tracking the Market Vectors Junior Gold Miners Index, which provides exposure to small- and medium-capitalization companies that generate at least 50% of revenues from gold and/or silver mining. The product has $3.6 billion in assets with a three-month trading volume of roughly 20,234,666 shares. It charges 52 bps in annual fees with an annual dividend yield of 4.59%.
The fund’s top 10 holdings comprise 41% of its asset base. Kirkland Lake Gold Ltd. (KLGDF), IAMGOLD Corporation (IAG) and VanEck Vectors Gold Miners ETF and occupy the top three positions in the fund with asset allocation of 5.63%, 4.90% and 4.65, respectively.
The fund seeks to match the performance and yield of the Solactive Global Gold Explorers Index, which tracks companies actively involved in gold exploration. Formed in November 2010, the ETF now manages assets worth $42 million. With a three-month average volume of 12,305 million shares, the fund charges 66 bps in annual fees and has a dividend yield of 39.69%.
Its top 10 holdings comprise 42.88% of assets. Coeur Mining, Inc. (CDE), Kirkland Lake Gold Ltd and OceanaGold Corporation (OCANF) and command the top three positions in the basket representing 5.31%, 4.82% and 4.53% of net assets, respectively.
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI ACWI Select Gold Miners Investable Market Index. This index measures the equity performance of companies in both the developed and emerging markets that derive the majority of their revenues from gold mining. The index also includes companies that do not hedge their exposure to gold prices.
The ETF has over $359.2 million in AUM and a three-month average volume of about 476,854 shares. It is also a low-cost pick with an expense ratio of 39 bps a year. It has a dividend yield of 1.29%.
The fund debuted in January 2012 and currently its top 10 holdings comprise 68.1% of assets. The fund’s top stocks include Barrick Gold Corporation, Newmont Mining Corporation and Newcrest Mining Limited with asset allocation of 13.28%, 12.76% and 8.80%, respectively.
PowerShares Global Gold &PrecMtls ETF
PSAU has been designed to track the NASDAQ OMX Global Gold & Precious Metals Index. The ETF has over $37.6 million in AUM and a three-month average volume of about 15,391 shares. It is a bit pricey, charging investors 75 bps on an annual basis. The fund has a dividend yield of 1.05%.
This fund holds 62 stocks in total with the top 10 comprising 54.5% of assets. Among individual holdings, Newmont Mining, Barrick Gold and Newcrest Mining Limited and occupy the top three positions with an asset share of 8.10%, 7.08% and 7.07%, respectively.
Launched in July 2014, SGDM tracks the Sprott Zacks Gold Miners Index, which is a rules-based index that assigns weightings on the basis of fundamental factors such as earnings and balance sheet growth.
SGDM currently has $176.8 million in AUM and a three-month average trading volume of about 66,832 shares. It charges 57 bps in annual expense and has a dividend yield of 0.02%.
The fund’s top 10 holdings comprise 73.74% of its asset base. Among individual holdings, Randgold Resources Limited (GOLD) (17.00%), Newmont Mining (13.86%) and Agnico Eagle Mines Limited (AEM) (13.25%) occupy the top three positions.
SGDJ seeks to deliver exposure to the Sprott Zacks Junior Gold Miners Index. This factor-based index aims to track the performance of small-capitalization gold companies whose stocks are listed on major U.S. and Canadian exchanges. The ETF has over $143.8 million in AUM and a three-month average volume of about 88,658 shares. It charges investors 57 bps on an annual basis with a dividend yield of 1.78%.
This fund has a total holding of 37 stocks with the top 10 holdings comprising 61.71% of assets. Among individual holdings, IAMGOLD Corporation, Alamos Gold Inc. (AGI) and New Gold Gold Inc. (NGD) occupy the top three positions with an asset share of 9.37%, 8.62% and 7.13%, respectively.
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Gold Mining ETF Investing Guide
Gold peaked to a six-week high earlier this month, triggered by disappointing U.S. jobs data. Further, terrorist attacks in London ahead of the U.K election have given a boost to gold prices. The most anticipated Bureau of Labor Statistics (BLS) monthly non-farm payroll numbers revealed that 138000 new jobs were created in May 2017, much below economists’ expectations of 184,000. The unemployment rate declined to 4.3% — the lowest in 16 years. Figures for March and April were also revised to show that 66,000 less jobs were created than expected, indicating that the labor market may be losing momentum. Average hourly earnings grew 2.5% year over year, which was another disappointing figure. (Read: Forget Gold, Palladium ETF is Shining the Brightest)
Gold investors were jittery before the much-awaited Fed meeting on Jun 14, in anticipation of an interest rate hike for the second time this year. The key interest rate was hiked to 1.00-1.25% from 0.75-1.0% set in Mar 2017. Policymakers reiterated their projections of one more rate hike this year, followed by three hikes each in 2018 and 2019. This move, followed by encouraging data on U.S. initial jobless claims, prompted a rebound in dollar and pushed gold prices to 3-week lows. Nevertheless, gold is up 9% so far this year.
The U.S. dollar has a close inverse relationship to commodity prices and gold. Considering that gold is not yield-producing and investors have to rely on price appreciation for returns, the yellow metal normally has a strong inverse correlation to inflation-adjusted interest rates. Gold traditionally is also viewed as a hedge against inflation. (Read: Gold ETFs Tussle Between Politics and Fed)
The uncertain political climate both in the UK and the United States is negatively impacting currencies and concerns over the fragility of both the economy and geopolitical tensions will keep the safe haven demand for gold up.
Macroeconomic trends in Asia will support economic growth in the coming years. Given that gold demand is generally closely correlated to increasing wealth in the continent, the commodity should be on fire. Asia mostly sees retail demand for the metal due to festival and wedding related buying activities in countries like India and China. (Read: Hot Housing ETFs to Buy Now)
While demand will remain strong, supply of this precious metal has already attained peak levels as per reports. Lower gold prices in the past few years had restricted the ability of gold producers to invest in new projects. There are few new projects and expansions anticipated to commence production this year. Further, those in the near-term pipeline are generally fairly modest in scale. Thus, global mine supply is in danger of trickling down. The combination of lower mined gold supply and higher demand could eventually help prices navigate north.
ETFs to Tap the Sector
The rally in the commodities may have lifted share prices of gold mining companies but investing in ETFs that track physical gold is a better way to invest in the metal. Below, we highlight the ETFs in this sector in greater detail for those seeking opportunities to make a gold-mining ETF play at this time.
VanEck Vectors Gold Miners ETF (GDX - Free Report)
GDX has assets under management worth $8.7 billion and a three-month trading volume of roughly 58,139,544 shares. The fund charges an expense ratio of 51 basis points (bps) a year with a dividend yield of 0.27%.
The ETF tracks the NYSE Arca Gold Miners Index, which provides exposure to publicly traded companies worldwide that are involved primarily in gold mining, representing a diversified blend of small, mid and large-capitalization stocks. The fund has invested 58% of the asset base in the top 10 holdings.
Among individual holdings, the top stocks in the ETF include Barrick Gold Corporation (ABX), Newmont Mining Corporation (NEM) and Newcrest Mining Limited (NCMGY), with asset allocation of 9.61%, 9.27% and 6.57%, respectively.
VanEck Vectors Junior Gold Miners ETF (GDXJ - Free Report)
Another popular choice in the gold miners ETF market is GDXJ, a fund tracking the Market Vectors Junior Gold Miners Index, which provides exposure to small- and medium-capitalization companies that generate at least 50% of revenues from gold and/or silver mining. The product has $3.6 billion in assets with a three-month trading volume of roughly 20,234,666 shares. It charges 52 bps in annual fees with an annual dividend yield of 4.59%.
The fund’s top 10 holdings comprise 41% of its asset base. Kirkland Lake Gold Ltd. (KLGDF), IAMGOLD Corporation (IAG) and VanEck Vectors Gold Miners ETF and occupy the top three positions in the fund with asset allocation of 5.63%, 4.90% and 4.65, respectively.
Global X Gold Explorers ETF (GOEX - Free Report)
The fund seeks to match the performance and yield of the Solactive Global Gold Explorers Index, which tracks companies actively involved in gold exploration. Formed in November 2010, the ETF now manages assets worth $42 million. With a three-month average volume of 12,305 million shares, the fund charges 66 bps in annual fees and has a dividend yield of 39.69%.
Its top 10 holdings comprise 42.88% of assets. Coeur Mining, Inc. (CDE), Kirkland Lake Gold Ltd and OceanaGold Corporation (OCANF) and command the top three positions in the basket representing 5.31%, 4.82% and 4.53% of net assets, respectively.
iShares MSCI Global Gold Miners ETF (RING - Free Report)
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI ACWI Select Gold Miners Investable Market Index. This index measures the equity performance of companies in both the developed and emerging markets that derive the majority of their revenues from gold mining. The index also includes companies that do not hedge their exposure to gold prices.
The ETF has over $359.2 million in AUM and a three-month average volume of about 476,854 shares. It is also a low-cost pick with an expense ratio of 39 bps a year. It has a dividend yield of 1.29%.
The fund debuted in January 2012 and currently its top 10 holdings comprise 68.1% of assets. The fund’s top stocks include Barrick Gold Corporation, Newmont Mining Corporation and Newcrest Mining Limited with asset allocation of 13.28%, 12.76% and 8.80%, respectively.
PowerShares Global Gold &PrecMtls ETF
PSAU has been designed to track the NASDAQ OMX Global Gold & Precious Metals Index. The ETF has over $37.6 million in AUM and a three-month average volume of about 15,391 shares. It is a bit pricey, charging investors 75 bps on an annual basis. The fund has a dividend yield of 1.05%.
This fund holds 62 stocks in total with the top 10 comprising 54.5% of assets. Among individual holdings, Newmont Mining, Barrick Gold and Newcrest Mining Limited and occupy the top three positions with an asset share of 8.10%, 7.08% and 7.07%, respectively.
Sprott Gold Miners ETF (SGDM - Free Report)
Launched in July 2014, SGDM tracks the Sprott Zacks Gold Miners Index, which is a rules-based index that assigns weightings on the basis of fundamental factors such as earnings and balance sheet growth.
SGDM currently has $176.8 million in AUM and a three-month average trading volume of about 66,832 shares. It charges 57 bps in annual expense and has a dividend yield of 0.02%.
The fund’s top 10 holdings comprise 73.74% of its asset base. Among individual holdings, Randgold Resources Limited (GOLD) (17.00%), Newmont Mining (13.86%) and Agnico Eagle Mines Limited (AEM) (13.25%) occupy the top three positions.
ALPS Sprott Junior Gold Miners ETF (SGDJ - Free Report)
SGDJ seeks to deliver exposure to the Sprott Zacks Junior Gold Miners Index. This factor-based index aims to track the performance of small-capitalization gold companies whose stocks are listed on major U.S. and Canadian exchanges. The ETF has over $143.8 million in AUM and a three-month average volume of about 88,658 shares. It charges investors 57 bps on an annual basis with a dividend yield of 1.78%.
This fund has a total holding of 37 stocks with the top 10 holdings comprising 61.71% of assets. Among individual holdings, IAMGOLD Corporation, Alamos Gold Inc. (AGI) and New Gold Gold Inc. (NGD) occupy the top three positions with an asset share of 9.37%, 8.62% and 7.13%, respectively.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>