31 Oct

Are Gold Miners Besieged by Internal Issues?

WRITTEN BY Direxion
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Direxion

Are gold mines haunted?

Gold has had a solid year so far, up 13.5% through mid-October. And though it peaked in early September at over $1,350 per ounce, it had a quick drop back to $1,261 in early October only to bounce back over $1,300 in mid-October. But NUGT, the 3X Bull Gold Miners ETF from Direxion, only bounced 3.9% while gold itself bounced 3.1%. Typically, we see a much higher correlation with gold and the miners—and thus NUGT.

So why the creepy divergence? It could be that investors in the actual mining companies don’t see a rebound in earnings with the pop in gold. The mining companies don’t show a lot of growth in 2018 estimates at this point. Or investors may believe gold is due for another fall and the mining companies just never registered the move. Or it could be just a lag. Whichever answer you believe, Direxion has you covered with NUGT (3x Bull Gold Miners) or DUST (3x Bear Gold Miners).

Are Gold Miners Besieged by Internal Issues?

Source: Bloomberg. Past performance does not guarantee future results.

The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. Returns for performance under one year are cumulative, not annualized. For the most recent month-end performance, please visit direxioninvestments.com

Market Realist

Divergent performance

Gold (GLD) has generally been trading in the range of $1,150 to $1,350 for the last five years. Though occasionally gold prices moved beyond this range, they weren’t sustained. Year-to-date through October 19, gold prices are up 12.4%. Continued geopolitical uncertainties—including tension in the Korean peninsula, deteriorating relationships with Iran, and Brexit negotiations—have supported safe-haven buying for gold.

Are Gold Miners Besieged by Internal Issues?

Company-specific factors

Although gold miners (NUGT)(JNUG) have performed in line with gold prices in the past, their stock performance in 2017 remained an aberration. Company-specific factors seem to have prevailed over the broader gold prices while providing a direction to gold miners’ stock prices. That impact could also partially explain the varied stock performance even among gold miners.

IAMGOLD (IAG) is up 49.9% this year, recording the highest upside among all miners. Robust exploration growth and significant discoveries have helped IAG to outperform other miners. Similarly, healthy operational performance and strong project execution helped Kinross Gold (KGC) post 38.3% upside YTD.

On the contrary, miners like Eldorado Gold (EGO), Tahoe Resources (TAHO), Barrick Gold (ABX), and Goldcorp (GG) have lost substantial value this year. While Eldorado Gold (EGO) is affected by problems in its mines in Greece and Turkey, Barrick Gold’s (ABX) performance was hurt by issues at its Argentinean and Tanzanian mines.

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