It was seemingly unthinkable earlier this year as gold raced to new highs, but the yellow metal is now in the throes of a bear market. Using the SPDR Gold Shares (NYSEMKT: GLD), the largest gold-backed exchange-traded fund (ETF), as the measuring stick, bullion's bear market is confirmed by the ETF trading 22% below its 52-week high at the close of U.S. markets on June 16.
Not surprisingly, the commodity's slide is a serious drag on gold stocks. Just look at the VanEck Gold Miners ETF (NYSEMKT: GDX). The largest ETF dedicated to companies that extract gold from the Earth is some 25% off its 52-week high, joining its physical gold friends in the bear camp.
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The VanEck ETF's recent weakness is a reminder that, while mining stocks are closely correlated with gold prices, these equities, broadly speaking, have a track record of overshooting the commodity's price movements in both directions. Plus, gold miners, including those held by this ETF, are often more volatile than gold itself. All that said, this mining ETF may offer an opportunity for risk-tolerant investors.
The easy answer is that gold will regain its groove, and that could happen if the Federal Reserve cuts interest rates. The gold/rates relationship is easily explained. Physical gold or an ETF such as the aforementioned SPDR fund yields no dividends or interest payments to investors, so when Treasury yields are elevated, low-risk U.S. government debt is simply more enticing to many investors than no-income gold.
Not surprisingly, the commodity's slide is a serious drag on gold stocks. Just look at the VanEck Gold Miners ETF (NYSEMKT: GDX). The largest ETF dedicated to companies that extract gold from the Earth is some 25% off its 52-week high, joining its physical gold friends in the bear camp.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue »
The VanEck ETF's recent weakness is a reminder that, while mining stocks are closely correlated with gold prices, these equities, broadly speaking, have a track record of overshooting the commodity's price movements in both directions. Plus, gold miners, including those held by this ETF, are often more volatile than gold itself. All that said, this mining ETF may offer an opportunity for risk-tolerant investors.
The easy answer is that gold will regain its groove, and that could happen if the Federal Reserve cuts interest rates. The gold/rates relationship is easily explained. Physical gold or an ETF such as the aforementioned SPDR fund yields no dividends or interest payments to investors, so when Treasury yields are elevated, low-risk U.S. government debt is simply more enticing to many investors than no-income gold.
4 months ago
