Gold, Silver Miner ETFs Leverage Metals Rally

The rally in the prices of gold and silver this year highlights the opportunities to leverage the performance through exchange-traded funds investing in gold and silver mining companies.

For investors and financial advisors bullish on the trend toward increased buying of precious metals by global central banks, the miner ETFs will provide enhanced performance.

In the case of silver, the iShares Silver Trust (SLV) is up more than 33% this year, which is in line with the Amplify Prime Junior Silver Miners ETF (SILJ) over the same period. But the best way to see how these two similar but distinct ETFs move is to look at the performance over the past three months.

SLV, which tracks the metal, is up 37.5% over the past three months, but SILJ, which saw a low point at the end of February, is up nearly 60% over the same period.

SILJ vs. SLV 1-Yr Chart

It’s a similar story for gold as tracked by the SPDR Gold Trust (GLD) and the VanEck Gold Miners ETF (GDX).

GLD, which tracks the metal, is up 17.5% this year and 19.8% over the past three months. By comparison GDX, which tracks gold miners, is up 20.1% this year and 38% over the past three months.

Adding another gear to that leverage, the VanEck Junior Gold Miners ETF (GDXJ) is up 23.8% this year and 44.8% over the past three months.

While the miner ETFs are not technically leveraged strategies that can be gut-wrenching for anyone but short-term traders, they are leveraged in the sense that they will generally outperform the underlying metal on the way up and also suffer bigger declines on the way down.

“Until March, gold was outpacing the gold and silver mining stocks which is not normally healthy, but since March, the stocks have been winning in a big way,” said Paul Schatz, president of Heritage Capital in Woodbridge, Conn.

Schatz said he has “traded GDX a few times this year” and plans to buy in at the next pullback and is closely watching the precious metals category because it is “going up without the usual tailwind.”

“I speculate that China has been a huge driver of demand as they have been selling massive amounts of U.S. Treasuries,” he said. “Some argue that they are preparing for war, others think it’s to reduce the leverage the U.S. has, or it could also be the first shot across the bow to remove the dollar as the world’s reserve currency.”

 Christian Magoon, chief executive of Amplify ETFs in Chicago, said the miner ETFs are riding the wave of precious metal prices that are being driven by China and Russia and countries aligned with them buying more gold as alternative to U.S. Dollar exposure.”

“Part of it is political tensions and they’re looking at U.S. debt levels and they know the U.S. has to somehow devalue the dollar,” he added. “In the U.S., we still have inflation that eats away at the value of our currency and these ETFs are one way to own inflation beneficiaries.”