Gold miner ETFs have boomed in recent months on the back of inflation uncertainty and bitcoin volatility.
With ongoing doubts surrounding central bank monetary policy and the price of bitcoin falling 37.6% in the 30 days to 1 June, gold is heading for its best month since July last year, according to data from Saxo Bank.
Benefitting from the bounceback in demand for the precious metal, ETFs offering exposure to gold mining companies have enjoyed an outsized recovery versus exchange-traded commodities.
Leading the way has been the Lyxor NYSE Arca Gold BUGS UCITS ETF (CD91), which returned 26.5% over the past three months, following its year-to-date low point in March.
Close behind, the Market Access NYSE Arca Gold Bugs UCITS ETF (MAGB), VanEck Vectors Gold Miners UCITS ETF (GDX), iShares Gold Producers UCITS ETF (SPGP) and L&G Gold Mining UCITS ETF (AUCO) booked returns ranging from 24.3% to 26.3% in the trailing twelve weeks.
The retracement of gold’s 2020 rally gathered momentum in May, with gold long positions hitting a four-month-high during the final week of the month, while the gross short position hit its lowest level since last summer.
Over the past month, the five gold miner ETFs also picked up the pace, rising between 12.4% and 14.9% apiece.
The question now being asked is whether the uptick since March can continue rolling on, or whether gold’s price will hit an insurmountable resistance point.
“Gold trades around $1,900 with overbought market conditions and optimism over the economic recovery being offset by focus on inflation, not least following the latest rally in energy prices,” Steen Jakobsen, CIO at Saxo Bank, said.
“Focus remains on Friday’s US job report and its potential impact on yields and the dollar.”
Steen said gold needs a period of consolidation, with price support levels lying between $1,800 and $1,900.
What will ultimately dictate the direction of the price of gold – and gold miner ETF returns – is whether the Federal Open Market Committee (FOMC) sticks to its word and keeps rates lower for longer or fulfils pundits’ predictions with sooner-than-promised tapering.
While a reflationary environment is usually supportive for gold as investors hedge against fiats’ diminished purchasing power, rates hikes could also prove supportive, as downside risk in equities and fixed income prompts a search for safe haven assets.
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