Did the Precious Metals Rally Cause Miners to Run to the Hills?


Dec. 4 2020, Updated 10:53 a.m. ET

Mining funds surged

Even though precious metals miners have seen a remarkable rally in their prices since the beginning of 2016, many fund managers have begun unloading their holdings in gold equities and sticking with physical gold. Mining shares have started falling over the past month and have seen considerable losses.

The famous mining fund, the VanEck Vectors Gold Miners ETF (GDX) fell by about 11.2% on a 30-day-trailing basis. However, it’s still risen by a whopping 98% year-to-date.

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The Bloomberg index of large gold-mining stocks has also been considerably higher since the start of 2016. During 2Q16, investors valued the gold reserves of these companies at $182 per ounce, almost double the amount from 4Q15 and the highest since 2012.

Another gold-based mining fund, the Sprott Gold Miners ETF (SGDM), has also risen by 95% year-to-date, but it has fallen by 13.8% on a 30-day-trailing basis.

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Giant mining stocks

Many fund management companies have shed their holdings in GoldCorp (GG), Newmont Mining (NEM), and Barrick Gold (ABX). The three large mining equities saw falls of 10.8%, 9.3%, and 16.7%, respectively, on a 30-day-trailing basis.

As the yields on about $9 trillion worth of government debt in developed markets have fallen below zero, investors feel secure with their money parked in precious metals. Mining equities have also developed a backbone for the same reason.

However, as the Federal Reserve now seems set for a rate hike, these stocks continue to plunge. Mining shares rose at almost five times the rate of commodities in 2016.


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