SGOL Abrdn Physical Gold Shares ETF

Gold prices finished Tuesday lower once again, as futures for June delivery dropped more than 1.5% on the session. This pushed the precious metal below the $1,600/oz. mark once more, and led to renewed worries over a further slump in the commodity’s price going forward.

This is especially true given the robust level of dollar strength in the market, and the continued bullishness in the equity world, factors that are dulling safe haven appeal across the board. In fact, this somewhat unusual combination has devastated gold prices so far in 2013, pushing the commodity down by nearly $100/oz since the start of the year (read 3 ETF Strategies for Long Term Success).

The weakness has also transferred over into the ETF space as well, with key products like GLD, IAU, and SGOL losing similar amounts (percentage wise) this year. All three are now down more than 5% on the year, pushing the trio down to negative double digit territory in the trailing six month period.

While these performances have been bad, events have been even worse in the gold mining ETF space. Products in this category generally trade as a leveraged play on the underlying commodities, so when gold prices are slumping, these mining ETFs are truly hurting (read Have We Seen the Bottom in Gold ETFs?).

This has particularly been the case as of late, as the double whammy of weak gold prices and a strong dollar has hurt operations of these firms. This is even more true for gold miners that have heavy international operations, as repatriation from foreign currencies back to U.S. dollars adds to their woes even more.

Gold Miner ETFs in Focus

Thanks to this trend, gold mining ETFs were crushed after today’s latest slump in gold bullion prices. Two of the most popular products in the space, GDX and GDXJ, both finished the day lower by more than 4%, while other choices in the space, PSAU, RING, and GGG, also traded down significantly on the day.

These terrible performances continue the trend that investors have seen so far in 2013 in this downtrodden space. All of the above highlighted gold mining ETFs are now down more than 20% YTD, far outpacing the -5% losses seen in the commodity market, and showcasing just how leveraged these funds can be when compared to underlying products (also see Gold ETFs Meet Covered Calls in Brand New GLDI).

Outlook for Gold Miner ETFs

Given how deep these trends are, and the apparent durability of the bull market in many other equity segments, it may be a good idea to avoid gold mining ETFs for the time being. There are plenty of other choices in the market that are less sensitive to commodities which likely to be better picks going forward (see Time to Buy This Top Ranked Dividend ETF?).  

If you are still bullish on gold, it may instead be time to look at the underlying commodity as opposed to the miners, at least in the near term. That is because the volatility—and underperformance—in the gold mining space has been significant, and bullion appears to be a lower risk play at this time.

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MKT VEC-GOLD MI (GDX): ETF Research Reports
 
MKT VEC-JR GOLD (GDXJ): ETF Research Reports
 
SPDR-GOLD TRUST (GLD): ETF Research Reports
 
ISHARS-GOLD TR (IAU): ETF Research Reports
 
ETFS-GOLD TRUST (SGOL): ETF Research Reports
 
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