Why Gold Miners Have Not Magnified Gold’s Gains in 2017



Leverage magnifies

Due to leverage, the performance of gold miners (GDX) usually magnifies the direction of the gold prices, but the scenario in 2017 YTD (year-to-date) is slightly different. While the SPDR Gold Shares (GLD) has increased by 16.3% YTD, the rise in the VanEck Vectors Gold Miners ETF (GDX) has been just 21%.

In fact, it’s only recently that GDX has caught up with the increase in gold prices. Toward the end of August, the rise in GLD became higher than the growth in GDX.

Due to their higher leverages, ETFs such as the Direxion Daily Gold Miners Bull 3x leveraged ETF (NUGT) and the Direxion Daily Gold Miners Bear 3x leveraged ETF (DUST) tend to compound the upsides or downsides of their underlying assets.

This anomaly is most likely due to the higher impact that company-specific factors have had on stock prices rather than due to how the stocks are following precious metal prices.

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Precious metal miner groups

For this discussion, we’ll be putting precious metal miners into the following five categories, based on unique characteristics:

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

Investors should note that there are certain overlaps in the above categories. For example, some South African miners could also fit into senior or intermediate space. Similarly, silver miners could be either senior or intermediate. These groups are broadly based on the unique factors driving them.

Series overview

In this series, we’ll analyze the performances of these miners in their respective groups. We’ll try to identify the divergences between their performances and the likely reasons behind them.

Notably, Iamgold (IAG), Gold Fields (GFI), Kinross Gold (KGC), Royal Gold (RGLD), and Franco-Nevada (FNV) have been the best performers in 2017 YTD (year-to-date). In subsequent parts of this series, we’ll deconstruct the GDX into sub-categories and analyze relationships to gold historically and YTD. This should help investors gain a better understanding of what to expect from these miners with respect to movements in gold prices.

Let’s first take a bird’s eye view of the relative performance of these groups.


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