Why Gold Miners Haven’t Magnified Gold’s Gains in 2018



Leverage magnifies

As of February 12, 2018, performance-wise, the VanEck Vectors Gold Miners ETF (GDX) and the SPDR Gold Shares ETF (GLD) had significantly diverged this year. Such divergence is not unusual.

In 2017, gold prices rose 13%, whereas the GDX gained only 11%. Company-specific factors have contributed to divergence more than precious metal prices have. In 2016, for example, when GLD gained 8%, the GDX amplified this by returning 48%, and in 2015, gold prices fell by 11% and GDX amplified this loss by falling 25%.

This magnification is also evident in the performance of more leveraged funds such as the Direxion Daily Junior Gold Miners Index Bull 3x Shares ETF (JNUG), which had gained 23% this year as of February 12, 2018.

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Precious metal miner groups

Based on their characteristics, we have categorized precious metals miners into the following five groups:

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

Series overview

In this series, we’ll analyze precious metal miners’ stock performance this year and try to explain any divergences. As the above graph shows, there are only a few miners that have seen positive returns this year. Yamana Gold (AUY), Coeur Mining (CDE), Pan American Silver (PAAS), and Royal Gold (RGLD) have outperformed their peers and GDX by returning 4.8%, 2.4%, 1.6%, and 1.4%, respectively.

We’ll also compare the performance of GDX’s various subcategories and gold, which should give investors a better understanding of what to expect for gold prices and miners. In the next part, we’ll analyze GDX’s and GLD’s price divergence this year.


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