5 Reasons Why Gold Mining ETFs & Stocks Have More Room to Run

Published 04/15/2020, 01:00 AM
Updated 10/23/2024, 11:45 AM
US500
-
GS
-
MS
-
DX
-
GLD
-
GDX
-

Gold had a decent first quarter, thanks to an equity market crash and the resultant safe-haven rally. Middle-East tensions and the coronavirus outbreak have kept global markets edgy since the start of the year. Gold bullion ETF SPDR Gold Shares (NYSE:GLD) GLD has also added about 14% in the past month amid the peak of the virus outbreak (read: Beyond Coronavirus, What's Driving Gold ETFs?).

The year-to-date performance was moderate for bullion (up about 12%) as the greenback strength (up 2.1%) capped gains of the bullion. However, things appear brighter for gold bullion as well as gold mining companies in Q2. Notably, gold miners have delivered sturdy performances in the past month. These stocks hail from a favorable Zacks industry (placed at the top 11% of total 250+ industries in the Zacks universe).

What Does Q2 Hold?

The Fed has been acting super-dovish since March.Its latest easing policy, announced on Apr 9, included the investment of “up to $2.3 trillion in loans to aid small and mid-sized businesses and state and local governments as well as fund the purchases of some types of high-yield bonds, collateralized loan obligations and commercial mortgage-backed securities.”

This was on top of the Fed’s zero rate policy in the United States and launch of an infinite QE as well as announcement of the buying of highly-rated corporate debt. On Mar 27, President Trump signed a $2-trillion stimulus package. Such a huge sum should keep the dollar’s strength in check. U.S. dollar ETF Invesco DB US Dollar Index Bullish Fund UUP was down about 2.5% in the past month.

Then there is the latest uptick in investors’ sentiments. All credit goes to the rollout of gigantic Fed and government stimulus, signs of virus containment and the biggest OPEC output-cut deal. The S&P 500 has just seen the best week since 1974. Several Wall Street strategists like Morgan Stanley (NYSE:MS) and Goldman Sachs (NYSE:GS) have started showing faith in the market recovery. No wonder, such risk-on sentiments will drive gold equities too (read: Stocks Look Set for a Rally: Top-Ranked ETFs to Buy).

Low oil prices are another plus. Mining companies’ 50% of production costs are closely linked to energy prices. As cheap as $20-oil despite the biggest output cut deal by the OPEC should work wonders for gold miners’ operating margins. Coronavirus-led demand disruptions have been weighing on oil prices (read: OPEC Output Deal Cut: Will It Help Oil & Energy ETFs?).

Cheaper valuation and relatively low debt are other positives. Price/Book ratio for the gold mining industry stands at 1.6x versus 3.7x of the S&P 500. Debt/Equity ratio is also favorable for miners (20.8%) compared with the S&P 500 (82%).

Safe-Haven demand for gold will stay strong despite bear market rallies as several Wall Street analysts still believe the latest rally doesn’t have legs. Plus, not only the Fed, most developed and emerging economies have been on a policy easing mode, offering a hefty stimulus to fight the novel coronavirus. The ECB and the BoJ have benchmark interest rates in the negative territory. Right now, real U.S. treasury yields are negative from five-year to 30-year term and this lowers the opportunity cost of holding a non-interest-bearing asset like bullion.

Stocks & ETFs in Focus

Against this backdrop, we highlight a few gold mining ETFs and stocks that appear healthy bets for Q2.

Newmont Corporation NEM

It is one of the world's largest producers of gold with several active mines in Nevada, Peru, Australia and Ghana. The stock has a Zacks Rank #2 (Buy). The stock has added more than 51% in the past month.

Alamos Gold Inc. AGI

The Canadian-based intermediate gold producer with diversified production from three operating mines in North America also has a Zacks Rank #2. The stock is up about 77.8% in the past month.

VanEck Vectors Gold Miners ETF (NYSE:GDX) GDX

The large-cap gold mining fund has gained about 63.4% in the past month against about 6% advancement in the S&P 500.

VanEck Vectors Junior Gold Miners ETF GDXJ

The fund is focused on small-cap gold mining companies. The product has jumped 76.8% in the past month.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free>>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Newmont Corporation (NEM): Free Stock Analysis Report

Alamos Gold Inc. (AGI): Free Stock Analysis Report

VanEck Vectors Gold Miners ETF (GDX): ETF Research Reports

VanEck Vectors Junior Gold Miners ETF (GDXJ): ETF Research Reports

To read this article on Zacks.com click here.

Zacks Investment Research

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2025 - Fusion Media Limited. All Rights Reserved.