As of July 25, 2016, the performance of the VanEck Vectors Gold Miners ETF (GDX) has significantly diverged from that of the SPDR Gold Shares (GLD) on a YTD (year-to-date) basis. However, this isn’t an isolated phenomenon.
When gold prices fell by 11% in 2015, GDX amplified that loss by returning -25%. 2016 is different only in direction, with GDX amplifying gold’s gains positively this time. This leverage play is also clear in the performance of more leveraged ETFs such as the Direxion Daily Junior Gold Miners Index Bull 3x Shares (JNUG), which has gained a whopping 483% YTD as of July 25.
Precious metal miner groups
Based on their unique characteristics, we categorize precious metals miners into the following five groups:
- senior gold miners
- intermediate gold miners
- South African gold miners
- royalty and streaming companies
- silver miners
In this series
In this series, we’ll analyze miner performances on a YTD basis and explain any divergences. The stocks that have gained the most YTD are the ones with the highest operating and financial leverage to gold prices. As the above graph shows, Coeur Mining (CDE), First Majestic Silver (AG), Harmony Gold (HMY), Hecla Mining (HL), and IAMGOLD (IAG) have gained the most. We’ll try to deconstruct the GDX into various sub-categories and analyze their relationship to gold historically and YTD. This should give investors a better understanding of what to expect from gold prices and of which miners could underperform or outperform the Gold Miners Index going forward.
In the next part, we’ll explain the divergence between gold prices and senior gold miners.