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With sooner-than-expected interest rate hike speculation back on the table and regained momentum in the U.S. economy, gold lost its luster over the past week (read: Reasons to Bet on Gold Mining ETFs Now).
This is especially true as chances of a rate hike in June and July increased after the April Fed minutes, which revealed that the central bank is on track to raise rates anytime soon provided inflation continues to climb, and the labor market and the economy continue to show strength. Higher interest rates would diminish gold’s attractiveness since the yellow metal does not pay interest like fixed-income assets and the bullion will lose further.
Further, international fundamentals have improved with stabilization in China and a jump in oil prices. All these factors have spread optimism in the equity space and strengthed the U.S. dollar, thereby tempering the safe haven appeal across the board. In fact, the gold bullion tumbled below $1,200 per ounce for the first time in more than three months on May 30. In fact, key products like GLD, IAU and SGOL shed nearly 5% over the past 10 days (read: Gold Rally Fades: Buy ETFs on the Dip or Short?).
While these performances have been bad, things are worse in the gold mining space. Acting as a leveraged play on the underlying metal prices, metal miners tend to experience more losses than their bullion cousins in a declining metal market. This trend is likely to continue at least in the near term given the spate of upbeat economic data and a strengthening dollar.
How to Play?
Given a sudden turnaround in the gold market, investors are flocking to the bear gold mining ETFs for outsized gains in a very short span of time. Below, we highlight four such ETFs that surged over the past 10 days and could be better options for investors with a higher risk appetite.
This product seeks to deliver thrice (3x or 300%) the inverse (opposite) daily performance of the NYSE Arca Gold Miners Index, which consists of firms that operate globally in both developed and emerging markets, and are involved primarily in the exploration and production of gold. More than half of the portfolio is dominated by the Canadian firms followed by the U.S. (15%) and Australia (11%). The fund has amassed $397.3 million in its asset base and average daily volume of more than 5.8 million shares. It charges investors 95 bps in annual fees and expenses. The ETF surged nearly 27.2% over the past 10 days (read: 16 Highly Traded Leveraged/Inverse ETFs of 2016).
This fund seeks to deliver thrice the inverse performance of the MVIS Global Junior Gold Miners Index. The benchmark provides exposure to the largest and most liquid small-cap companies that derive more than half of their revenues from gold or silver mining. Considering the country profile, Canada takes the top spot at 66.2% while Australia and the U.S. round off the next two spots with a single-digit allocation each. The ETF has accumulated $72.5 million and charges 95 bps in annual fees. Average trading volume is solid, exchanging more than 632,000 shares a day in hand. The fund gained nearly 31.6% in the same time frame.
ProShares UltraShort Gold Miners ETF
Unlike the two gold miner ETFs, this fund provides twice (2x or 200%) the inverse return of the NYSE Arca Gold Miners Index. The product is unpopular with AUM of around $3 million and sees paltry volume of 32,000 shares a day on average. Expense ratio came in at 0.95%. GDXS retuned nearly 18.4% over the past 10 days (read: Where Will Gold Mining ETFs Go From Here?).
ProShares UltraShort Junior Miners ETF
This ETF provides two times inverse exposure to the performance of the MVIS Global Junior Gold Miners Index. It has accumulated just $0.4 million in its asset base while trades in paltry volume of 5,000 shares. It charges 95 bps in annual fees from investors and gained nearly 20% in the same time frame.
Bottom Line
As a caveat, investors should note that such products are extremely volatile and suitable only for short-term traders. Additionally, the daily rebalancing – when combined with leverage – may force these products to deviate significantly from the expected long-term performance figures (see: all Inverse Equity ETFs here).
Still, for ETF investors who are bearish on gold for the near term, either of the above products could make an interesting choice. Clearly, a near-term short could be intriguing for those with high-risk tolerance, and a belief that the “trend is the friend” in this corner of the investing world.
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Bear Gold Mining Leading Leveraged ETF Pack
With sooner-than-expected interest rate hike speculation back on the table and regained momentum in the U.S. economy, gold lost its luster over the past week (read: Reasons to Bet on Gold Mining ETFs Now).
This is especially true as chances of a rate hike in June and July increased after the April Fed minutes, which revealed that the central bank is on track to raise rates anytime soon provided inflation continues to climb, and the labor market and the economy continue to show strength. Higher interest rates would diminish gold’s attractiveness since the yellow metal does not pay interest like fixed-income assets and the bullion will lose further.
Further, international fundamentals have improved with stabilization in China and a jump in oil prices. All these factors have spread optimism in the equity space and strengthed the U.S. dollar, thereby tempering the safe haven appeal across the board. In fact, the gold bullion tumbled below $1,200 per ounce for the first time in more than three months on May 30. In fact, key products like GLD, IAU and SGOL shed nearly 5% over the past 10 days (read: Gold Rally Fades: Buy ETFs on the Dip or Short?).
While these performances have been bad, things are worse in the gold mining space. Acting as a leveraged play on the underlying metal prices, metal miners tend to experience more losses than their bullion cousins in a declining metal market. This trend is likely to continue at least in the near term given the spate of upbeat economic data and a strengthening dollar.
How to Play?
Given a sudden turnaround in the gold market, investors are flocking to the bear gold mining ETFs for outsized gains in a very short span of time. Below, we highlight four such ETFs that surged over the past 10 days and could be better options for investors with a higher risk appetite.
Direxion Daily Gold Miners Index Bear 3x Shares (DUST - Free Report)
This product seeks to deliver thrice (3x or 300%) the inverse (opposite) daily performance of the NYSE Arca Gold Miners Index, which consists of firms that operate globally in both developed and emerging markets, and are involved primarily in the exploration and production of gold. More than half of the portfolio is dominated by the Canadian firms followed by the U.S. (15%) and Australia (11%). The fund has amassed $397.3 million in its asset base and average daily volume of more than 5.8 million shares. It charges investors 95 bps in annual fees and expenses. The ETF surged nearly 27.2% over the past 10 days (read: 16 Highly Traded Leveraged/Inverse ETFs of 2016).
Direxion Daily Junior Gold Miners Index Bear 3x Shares (JDST - Free Report)
This fund seeks to deliver thrice the inverse performance of the MVIS Global Junior Gold Miners Index. The benchmark provides exposure to the largest and most liquid small-cap companies that derive more than half of their revenues from gold or silver mining. Considering the country profile, Canada takes the top spot at 66.2% while Australia and the U.S. round off the next two spots with a single-digit allocation each. The ETF has accumulated $72.5 million and charges 95 bps in annual fees. Average trading volume is solid, exchanging more than 632,000 shares a day in hand. The fund gained nearly 31.6% in the same time frame.
ProShares UltraShort Gold Miners ETF
Unlike the two gold miner ETFs, this fund provides twice (2x or 200%) the inverse return of the NYSE Arca Gold Miners Index. The product is unpopular with AUM of around $3 million and sees paltry volume of 32,000 shares a day on average. Expense ratio came in at 0.95%. GDXS retuned nearly 18.4% over the past 10 days (read: Where Will Gold Mining ETFs Go From Here?).
ProShares UltraShort Junior Miners ETF
This ETF provides two times inverse exposure to the performance of the MVIS Global Junior Gold Miners Index. It has accumulated just $0.4 million in its asset base while trades in paltry volume of 5,000 shares. It charges 95 bps in annual fees from investors and gained nearly 20% in the same time frame.
Bottom Line
As a caveat, investors should note that such products are extremely volatile and suitable only for short-term traders. Additionally, the daily rebalancing – when combined with leverage – may force these products to deviate significantly from the expected long-term performance figures (see: all Inverse Equity ETFs here).
Still, for ETF investors who are bearish on gold for the near term, either of the above products could make an interesting choice. Clearly, a near-term short could be intriguing for those with high-risk tolerance, and a belief that the “trend is the friend” in this corner of the investing world.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>