Last week, I focused on the Junior Gold Miners Exchange Funds and companies. Today, I'll answer your questions on the U.S. Dollar, identify the larger Gold Mining Exchange Traded Funds, then analyze the larger mining companies for potential investment and trading opportunities.
Before we proceed, last week, I warned of the parabolic move within this precious metals group. Profit-taking hit hard with gold and silver along with many exchange-traded funds in this group. Why the sudden drop in price? Anytime securities run this much, at some point, profit-taking comes in. Many securities in this group have been trading inverse to the U.S. Dollar ($USD). Last week, the selling slowed with the dollar, causing precious metals to drop.
If the dollar decides to strengthen, expect more downside with gold and silver. With the massive amount of debt hitting the Fed balance sheet, I don’t see a strong rally with the dollar. If this happens, see more upside ahead with precious metals and their bullish funds and some companies.
First, let’s identify potential large gold miners exchange-traded funds and see their performance relative to the U.S. Dollar ($USD).
GDX-VanEck Vectors Gold Miners ETF tracks as closely as possible, before fees and expenses, the price and yield performance of the Arca Gold Miners Index. The fund normally invests at least 80% of its total assets in common stocks and depositary receipts of companies involved in the gold mining industry.
RING-iShares MSCI Global Gold Miners ETF tracks a cap-weighted index of global gold mining companies, with about 90% of its portfolio in companies primarily engaged in the production of gold and the remainder in firms whose mining operations are diversified across other metals. The firms at the top of the industry — Barrick, Newmont and Goldcorp — make up about a third of its portfolio, and more than 60% of fund assets are in the top 10 holdings.
GOEX-Global X Gold Explorers ETF tracks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Solactive Global Gold Explorers & Developers Total Return Index. The fund invests at least 80% of its total assets in the securities of the index and American Depositary Receipts and Global Depositary Receipts based on the securities in the underlying index
To see the performance of these select ETFs compared to the performance of the U.S. Dollar Index ($USD), I designed a chart beginning on March 24 to real-time.
The GOEX-Global X Gold Explorers ETF took top honors with an explosive 100% return. RING-iShares MSCI Global Gold Miners ETF was up 79%, followed by GDX-VanEck Vectors Gold Miners ETF up 78%. The benchmark index the U.S. Dollar index was down over nine percent.
Here are the key points: During this timeframe, all three ETFs traded inversely to the dollar. When the dollar rallied, all three sold off over 20-plus%, proving this inverse action continues. Smart traders were watching and made quick money with the bear precious metal leveraged funds. See previous columns for details.
In the next step, I am doing something different and am looking at the companies in GDX, instead of GOEX for trading opportunities. Why? When trading, I like to see daily trading volume above 50,000 shares to make sure there is plenty of shares at our price available. Unfortunately, the average trading volume for GOEX is only 27,000 shares. Also, assets under management are only 68 million. My preference is at least four times that. The average trading volume for GDX is over 31 million, with assets under management over 18 billion.
Here are the mining companies in GDX, to monitor for trading opportunities: NEM-Newmont Mining, GOLD-Barrick Gold, FNV- Franco-Nevada Corp., WPM-Wheaton Precious Metals Corp., AEM- Agnico Eagle Mines Ltd., KL- Kirkland Lake Gold Ltd., AU- AngloGold Ashanti Limited Sponsored ADR.
To see the performance of these top companies compared to the GDX, I designed a chart beginning on March 24 to real-time.
Agnico Eagle Mines Ltd. took top honors with an impressive 110% return. Wheaton Precious Metals Corp. up 105%, AngloGold Ashanti Limited Sponsored ADR up 96%, Kirkland Lake Gold up 91% followed by Barrick Gold up 65%, then Newmont Corporation up 55%. The laggard was Franco-Nevada Corp, up a nice 53%, but not as impressive compared to the other company returns. The benchmark fund GDX was up 90%.
Here are the action points: During this timeframe, the returns are mixed. Four companies outperformed the index GDX while three did not. I don’t want to sound like a broken record, but these gains are parabolic and will not run forever. Traders will be watching to see if, during rallies, price tests their previous highs. If they do not, then look for another round of profit-taking to begin.
Since some of these companies are in foreign countries and operate under different rules and regulations, it adds extra risk to any investing or trading decisions and can cause extra tax consequences, even in retirement accounts. For example, when I owned Canadian stocks that paid a dividend, a 15% withholding tax stayed in Canada.
Before trading any of these mining companies, know if they are trading with the market (SPX) or inverse to the dollar. Also, if they are located outside of the U.S., research any tax consequences and if it changes due to the length of ownership.
Finally, if you do not take the time to do your due diligence to determine which indicators gave the best signals with previous moves you have no business trading.
In full disclosure, I still hold physical silver bars and rounds.
Plan your work, work your plan, and share your harvest!
DAVID O. ENGLAND is an investor/trader, financial analyst/educator/lecturer and Associate Professor Emeritus of Finance. This column is for educational purposes only and not intended as financial advice. Past performance does not dictate future returns. Questions? Send to email@example.com.
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