The Market Vectors Gold Miners ETF, the largest and most heavily traded gold miners ETF, slumped again last year, but some analysts and strategists see an opportunity with gold miners as shareholders start to move to gold, restoring bullion’s safe-haven position. Gold is seeing greater support from safe-haven demand after currency devaluations throughout Asia added to investment demand for a better store of value than paper currencies or stocks and bonds.
Gold assets come off more suitable in a low-interest rate environment as the precious metal is more competitive against assets that pay low interest, like bonds. If the Fed holds off on further rate spikes, it would imply the economy is not as strong, which would also help gold attract safe-haven demand. Even if rates increase a couple basis points, the continued low rate environment is good for gold, which does not pay a yield and would face obstacles to compete with yield-generating assets when rates increase.
Making matters less fun for gold ETFs are expectations for soft near-term demand at a time of year when gold demand is usually heavy. Some analysts debate that the gold miner space looks like a cheap buying opportunity. In July, Morgan Stanley raised its outlook on Goldcorp Inc, the biggest gold miner in space, pointing to the company’s attractive valuations.
“Larry McDonald of Societe Generale said credit risk from the commodities collapse will hinder the Federal Reserve’s ability to raise interest rates for the rest of the year, which could slow the U.S. dollar and thus boost the price of gold and the stocks levered to gold,” reports Stephanie Yang of CNBC. GDX along with rival gold miners funds have also been struck by weak copper prices because some big-name gold miners also mine copper.
Potential gold mining victims of slumping copper prices include Barrick Gold, Newmont Mining, Buenaventura Mines and New Gold, according to JPMorgan.
“In the past, as the Fed has taken dovish turns as they did in September, the gold miners were up in a very short period of time,” McDonald stated to CNBC. “For the rest of the year, I think credit risk will veto the Fed’s policy path and therefore, gold and the gold miners are going to do very, very well in that environment in 2016.”