Gold ETFs Shine Amid Market Turmoil

February 09, 2016

Sustainable Rebound, Or Bear Market Rally?

It's easy to get excited about the latest jump in gold prices, but it's important to put it in perspective as well. A look at the five-year gold chart reveals there have been many brief rallies in the gold price, but each has quickly fizzled, opening the door to a renewed decline.

In fact, gold rose as much as 10% last January also, but ultimately ended the year down by that same amount.

5-Year Spot Gold Price

It remains to be seen whether this is the recovery that finally puts gold back on a sustainable, bullish path or if this is just another bear market rally.

GLD & Miner ETFs On The Rise
In any case, ETF investors have wasted no time in scooping up what they see as bargains in the precious metals space. The SPDR Gold Trust (GLD | A-100) saw the most inflows of all exchange-traded funds last week, and has picked up $1.8 billion of investor capital so far this year.

GLD's 13% gain for the year closely matches the return for spot gold prices.

Meanwhile, as they typically do, miner ETFs handily outperformed spot gold on the way up. The Market Vectors Gold Miners ETF (GDX | C-81) and the Sprott Gold Miners ETF (SGDM | B-70) added 29.9% and 28.8%, respectively, year-to-date.

"We've seen a rotation from out of the general stock market into mining stocks," said Sprott's Ciampaglia. "There's a bit of a short squeeze going on. A lot of hedge funds that were big beneficiaries of shorting gold mining stocks last year may be covering those shorts."

Of course, who could blame hedge funds for pressing their short bets? This latest jump notwithstanding, it's largely been a one-way trade for gold mining ETFs. From a peak of $66 in 2011, GDX hit a low of near $12.50 in mid-January before taking off just in the last few weeks.

YTD Returns For Gold, GLD, GDX, SGDM

Just as with gold, only time will tell whether this recovery in the miner ETFs has staying power.

Contact Sumit Roy at [email protected].

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