There's no doubt that gold has been the premier asset thus far in 2016, far outpacing all other markets that seem increasingly shaky. Even as most analysts were calling for the precious metal to continue falling, the bulls have consistently outnumbered the bears in the gold market. With so much momentum at their backs, gold miner stocks and gold-backed exchange-traded funds (ETFs) have ridden a wave of bullish sentiment.
What's Driving Gold?
As gold ETFs have consistently crushed expectations this year and the gold mining sector has enjoyed a strong price turnaround, it's worth stopping and asking why this is the case.
Like most explanations regarding the gold market, a confluence of factors have led to the rally. Whether you're looking at emerging markets or developed economies, deflation has been a growth-killer. This stretches across the worlds of finance and currency trading as well as the all-important energy market. Bank shares are suffering, most currencies are watching their exchange rate fall, and the price of crude oil is still stuck in the $35/bbl range.
General uncertainty and distrust of the markets has made gold even more appealing. With volatility high right now, just about the only safe trade in town is piling into gold.
In February alone, the gold price gained over 10%—its best monthly performance since January 2012.
Gold ETF Inflows
The factors in favor of gold have led to a corresponding rise in gold ETF holdings. By the end of last week, the largest such fund, GLD, had seen its total increase to 762 tonnes of gold. This brought the total across all gold-backed ETFs to 1,683 tonnes of the yellow metal, a 17-month high. The market generated 3.9 tonnes (125,385 troy ounces) of inflows last Friday alone. So far this year, GLD has advanced an impressive 17%.
Gold Miners Surge
For much of the year, mining shares have lagged behind the gains seen in the precious metals market. Miners were held back, in part, because they are actual companies with operating costs and other expenses that investors much factor in. By contrast, buying physical gold or gold ETFs allows you to get exposure to the metal without paying for anything else.
Yet the miners have turned it around. As you would expect, the drawback for mining stocks turned into an advantage once enough momentum was established. This means that the recent under-performance by mining firms has been supplanted by even better returns than the gold price alone.
Here are a few of the top performers during February in the gold mining ETF sector, which bundles together and tracks many mining companies at once:
PureFunds ISE Junior Silver ETF (SILJ) +34.2%
iShares MSCI Global Gold Miners ETF (RING) +34.1%
Market Vectors Gold Miners ETF (GDX) +32.1%
iShares MSCI Global Silver Miners ETF (SLVP) +32.0%
Market Vectors Junior Gold Miners ETF (GDXJ) +31.1%
Sprott Junior Gold Miners ETF (SGDJ) +29.8%
PowerShares Global Gold and Precious Metals Portfolio (PSAU) +29.6%
Sprott Gold Miners ETF (SGDM) +29.2%
Global X Gold Explorers ETF (GLDX) +27.9%
Global X Silvers Miners ETF (SIL) +25.9%
In addition, three of the major mining stocks have also been on fire:
Kinross Gold (KGB) +76.3%
Barrick Gold (ABX) +33.2%
Goldcorp (GG) +37.4%
These stellar performances truly offer investors an array of options if they want to protect their portfolios with gold, whether that is in the short-term or long-term; whether they want loss prevention or profit-taking opportunities; and whether they want to hold the physical metal or move in and out of these positions.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.