Precious Metal Mining ETFs Rock New Year

January 24, 2014

M&A activity and ultra-low prices are bringing miner stock ETFs back into the limelight.

Precious metal mining ETFs—those that invest in the companies that explore and produce precious metals around the globe—had a very difficult year in 2013, bleeding more than half of their value amid sinking gold and silver values. But so far this year, they’ve been delivering serious performance, particularly in the small-cap segment.

Funds like the Market Vectors Junior Gold Miners ETF (GDXJ | B-32) and the PureFunds ISE Junior Silver (Small Cap Miners/Explorers) (SILJ | F-37), for instance, have rallied now 20.7 and 29.5 percent, respectively, since the beginning of the year. That performance is outpacing the also-impressive gains in their larger-cap counterparts, the $7 billion Market Vectors Gold Miners ETF (GDX| A-55) and the $216 million Global X Silver Miners ETF (SIL | B-73), as in the chart below.

SILJ_SIL_GDXJ_GDX_YTD_Performance

These are a significant jump in returns in a very short time, considering these same four funds gave up as much as 60 percent of their value last year when investors continued to shun the perceived safety of precious metals altogether for other equities and short-term debt securities.

That distaste for precious metals markets—and mining stocks—has been the case for much of the past 2 1/2 years, following the global economic crisis. To put it in CPM Group’s words—a commodities research and consulting company that issued a research note earlier this month—“as investors realized the world was not ending, we expected them to bail out of precious metals. They did.”

For instance, those investors who held on to GDXJ in the past three years or so have watched the fund slide nearly 70 percent. GDXJ has $1.4 billion in assets.

 

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