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Finding Investment Opportunities in Gold after the Rate Hike

PART:
1 2 3 4 5 6 7 8
Part 3
Finding Investment Opportunities in Gold after the Rate Hike PART 3 OF 8

Which Gold Miners Could Be Appealing after the Rate Hike?

A leveraged way to play gold prices

On March 16, 2017, the performance of the VanEck Vectors Gold Miners ETF (GDX) significantly diverged from the SPDR Gold Shares ETF (GLD) on a YTD (year-to-date) basis. However, that’s not an isolated phenomenon.

When gold prices fell 11.0% in 2015, GDX amplified the loss by falling 25%. The direction was different in 2016, with GDX positively amplifying gold’s gains by rising 48% against gold’s rise of 8%.

Which Gold Miners Could Be Appealing after the Rate Hike?

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As we saw in the previous part of this series, the Fed expects two more interest rate hikes in 2017. That could be negative for gold prices, and the leverage could again work on the downside for miners.

ETFs such as the Direxion Daily Gold Miners Bull 3X ETF (NUGT) and the Direxion Daily Gold Miners Bear 3X ETF (DUST) are leveraged ways to play gold prices to the upside and the downside.

Precious metal miners

Based on the unique characteristics of precious metal miners, we’ll categorize them into the following groups:

  • senior gold miners
  • intermediate gold miners
  • royalty and streaming companies
  • silver miners
  • South African gold miners

There are certain overlaps in these categorizations. For example, some South African companies could fit into the senior or intermediate space, and some silver miners could be either senior or intermediate miners. These categories are broadly based on the unique factors that drive them.

Looking at the miners

In this series, we’ll analyze the stocks in each category of miners that could outperform, given a higher interest rate scenario going into 2017.

As the chart above shows, Barrick Gold (ABX), Sibanye Gold (SBGL), Goldcorp (GG), and Pan American Silver (PAAS) have risen the most year-to-date. We’ll assess the reasons for these performances, which could help identify these miners’ likely courses of action as the price of gold comes under pressure following the Fed’s rate hike. 

This assessment could also give us a better understanding of what to expect from gold prices and which miners could underperform or outperform the Gold Miners Index going forward.

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