Gold Mining ETF on the Up

on Jun 6, 2012
Updated: Feb 9, 2024

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On June 4 Seeking Alpha, a website for actionable stock opinion and analysis published an article entitled “What Mining ETFs Are Implying for Gold and Hard Assets Producers.” The author of the piece is Gary Gordon, a contributor at Seeking Alpha, a Certified Financial Planner (CFP®) and an experienced personal coach in “money matters”, including risk assessment, small business development and portfolio management. Gordon’s commentary on the recent gold trends does not constitute individualised investment advice or personalised recommendations. His opinion offered at Seeking Alpha is however a professional review and analysis of the recent market events.

!m[](/uploads/story/160/thumbs/pic_1_inline.png)“Most of the articles that you read — most of the programs that you watch — have instructed you to forget about stocks. “Sell in May” worked, so… see you in October” — with these words Gordon starts his commentary. According to him, there is currently little interest in the ETF SPDR Gold (GLD) with buyers and advisers losing a degree of faith in gold’s status as a safe haven. In these times of uncertainty where buying stocks is considered risky and where gold prices may be on their way down to $1000 per ounce, instead of up to $2000 per ounce, there is a growing interest in Market Vectors Gold Miners (GDX), Gordon notes and further explains. For the first time since last September the price ratio GDX:SPY has risen above a key 50-day moving average, and GDX has gained a bit of momentum resulting in increased interest in the mining ETF.

And while, according to the author of the Seeking Alpha’s article, purchasing miners during a commodity-led economic slowdown may seem reckless, there is a possibility that this is actually a very smart move. Comparing it to the decision of the smartest businesspeople to open a shop during an economic crisis, Gordon claims that the forward-looking investors are buying hard asset producers during a global recession.

This trend however is so far limited to gold producers. The more diversified SPDR Metals & Mining (XME) is not confirming the same phenomenon, the article’s author further explains. Accordingly, the fact that Gold Miners (GDX) has recently climbed higher may have more to do with an expectation of widespread central bank easing. Gordon continues his analysis with an explanation that when central banks around the world coordinate rate reductions and money printing to help the difficult situation in Europe, gold should recover some bullish momentum – the higher the metal prices, the higher the mining profits. Notwithstanding this trend, the SPDR Gold Trust (GLD) would probably remain the safer option as historically there have been many times when the Gold Miners (GDX) failed to deliver profit on the back of rising metal prices.


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