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Gold Mining ETFs on a Tear: Here's Why

Sweta Jaiswal, FRM

Currently, the geopolitical scenario is marked by escalating Sino-US trade tensions, Brexit uncertainty and slowing global growth, leading to a rise in the popularity of gold ETFs. Per a Bloomberg report, gold ETFs have been seeing a consistent inflow in assets over the past 17 days. It is worth noting here that spot gold prices have risen around 15.9% over the past six months. Let’s take a sneak peek into what’s driving the demand (read: ETF Strategies to Follow Amid Recession Scares).

Sino-US Trade War Uncertainty

Although officials from China and the United States are set to meet for a two-day meeting on Oct 10, the latest series of events fail to cheer. The Trump government added some of China’s top AI startups to its trade blacklist. The new list includes around 20 Chinese public security bureaus. Moreover, eight companies, including video surveillance firm Hikvision, along with prominent facial recognition technology companies like SenseTime Group Ltd and Megvii Technology Ltd have been blacklisted.

Slowing Global Economic Growth

The latest report by the Institute for Supply Management (ISM) on U.S. manufacturing has been disappointing. The ISM Manufacturing Purchasing Managers’ Index (PMI) in the United States was the lowest in more than 10 years at 47.8% for September 2019. This has sparked renewed recessionary fears among analysts (read: ETFs in Focus as US Manufacturing PMI Data Disappoints.

A slowdown in global economic growth is being observed. The Eurozone economy has been going through tough times on falling demand for goods and services. This is especially true as IHS Markit Composite PMI dropped to 50.4 inSeptember from 51.9 in August. This represents the weakest rise in output across manufacturing and services since June 2013. The persistent global trade disputes and the prolonged process involving the Britain exit from the European Union are primarily responsible for the slowdown (read: Eurozone ETFs in Focus on Weak PMI Data).

Moreover, economic impact of the Sino-US trade war resulted in the fastest decline in Japanese manufacturing activity in seven months in September. The Jibun Bank Flash Japan Manufacturing PMI dropped to a seasonally adjusted 48.9 from a final 49.3 in August.

Easing Monetary Policies

The Fed has cut interest rates two times this year to sustain a decade-long economic expansion. Many other developed and developing countries are following the same path, wherein central banks are resorting to rates cut or launching fresh stimulus to tackle global growth headwinds (read: 5 Ultra-Cheap Growth ETFs to Tap on Global Stimulus Hopes).

Recently, Australia’s central bank slashed the cash rate for the third time in five months in order to increase employment and control low inflation. In fact, the European Central Bank has cut interest rates deeper into negative territory and promised an indefinite supply of fresh asset purchases in order to revive the struggling Eurozone economy. China’s central bank trimmed its reserve requirements for the seventh time since the start of 2018, reducing the amount of cash that banks are mandated to keep on reserve and thus freeing up as much as 900 billion yuan ($126 billion) in liquidity. Meanwhile, the Bank of Japan signaled at chances of more support measures as early as its next policy meeting in October (read: Chances of Fed Rate Cut in October Rise: Sector ETFs to Buy).

ETFs in Focus

The dual tailwinds of easing policies and flight to safety amid geopolitical tensions and global growth worries are expected to increase the attractiveness of gold, pushing prices higher. In such a condition, gold mining stocks will also get a boost, given that these are leveraged plays on the underlying metal. Let’s explore some of the gold mining ETF options.

iShares MSCI Global Gold Miners ETF RING — up 40.8% year to date

This ETF offers exposure to companies that derive the majority of revenues from gold mining. It follows the MSCI ACWI Select Gold Miners Investable Market Index and holds 35 securities in its portfolio. RING is a cheap choice in the gold mining space, charging just 39 bps in fees and expenses. The fund has been able to manage assets worth $320.6 million (read: 5 Wining Global ETF Areas of Q3).

U.S. Global GO GOLD and Precious Metal Miners ETF GOAU — up 41.9%

This fund provides investors with access to companies engaged in the production of precious metals either through active (mining or production) or passive (owning royalties or production streams) means. It has amassed $34.1 million in its asset base and charges 60 bps in fees per year (read: 4 Market-Beating Sector ETFs of the Third Quarter).

VanEck Vectors Gold Miners ETF GDX — up 34.5%

This is the most-popular and actively traded gold miner ETF with AUM of $11.59 billion. The fund follows the NYSE Arca Gold Miners Index, holding 45 stocks in its basket. The fund charges 52 bps in annual fees (read: Guide to 10 Most-Heavily Traded ETFs).

Sprott Gold Miners ETF SGDM — up 38.3%

This fund follows the Solactive Gold Miners Custom Factors Index, holding 31 stocks in its basket. The fund has amassed $182.2 million in its asset base and charges 50 bps in annual fees from investors (read: Top-Performing ETFs of the First Nine Months of 2019).

VanEck Vectors Junior Gold Miners ETF GDXJ – up 28.3%

GDXJ is a small-cap centric ETF that tracks the MVIS Global Junior Gold Miners Index. Holding 74 stocks in its basket, the product has AUM of $4.33 billion. It charges 5        3 bps in annual fees (read: US Stocks' Worst Start to Q4 in Decade: ETF Winners, Losers).

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Sprott Gold Miners ETF (SGDM): ETF Research Reports
 
VanEck Vectors Junior Gold Miners ETF (GDXJ): ETF Research Reports
 
VanEck Vectors Gold Miners ETF (GDX): ETF Research Reports
 
iShares MSCI Global Gold Miners ETF (RING): ETF Research Reports
 
U.S. Global GO GOLD and Precious Metal Miners ETF (GOAU): ETF Research Reports
 
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