Are Gold Bullion ETFs Better Bets Than Miners?
The largest gold bullion ETF SPDR Gold Shares GLD is up 3.4% this year against the Gold Miners Equity ETF GDX’s 3.7% losses. The fund GLD has lost 3.6% in the past three months (as of Aug 18, 2023) against 13.4% losses seen in the miners ETF GDX. In this article, we’ll tell you why bullion ETFs are currently better bets than miners, if you at all want to play the gold space.
Inside the Opportunities and Weakness of Gold Bullion Investments
Inflation has significantly reduced from its 40-year peak in mid-2022. Hence, a less-hawkish Fed this year has provided much-needed support to gold bullion prices. Gold prices tend to move inversely to interest rates. When interest rates decline, non-interest-bearing gold becomes more attractive as it competes more favorably with interest-bearing investments like bonds.
Physical demand for gold remains robust, fueled by central bank purchases and consumer demand. Central banks from emerging markets continue to diversify their reserves by acquiring gold, reflecting their confidence in the metal's enduring value.
The metal is seen as a safe-haven assets. With the U.S. banking sector struggling with potential rating downgrades and the likely contagion from China’s ailing real estate sector, we may see a broad-based crash in the market. If this happens, gold bullion may gain in value due to risk-off trade sentiments.
However, inflation remains considerably above the Fed's desired 2% level. The Fed members see further upside risks to inflation, which may cause further rate hikes. This may result in higher treasury yields and increased strength of the greenback, which will go against the greenback.
Invesco DB Precious Metals Fund DBP and abrdn Physical Gold Shares ETF SGOL have lost 1.1% and 1.2% last week, respectively.
Inside the Pain of Miners
High oil prices are negatives. Mining companies’ 50% of production costs are closely linked to energy prices. After a moderate rally this year, crude prices have been hovering around $80-level. The WTI crude ETF USO has added 13.7% in the past three months. This should cause trouble for gold miners’ operating margins.
Earnings have been mixed-to-downbeat. Newmont Corporation NEM reported adjusted earnings were 33 cents per share, which lagged the Zacks Consensus Estimate of 39 cents. The company’s revenues of $2,683 million also missed the Zacks Consensus Estimate of $2,870.1 million. Barrick Gold Corporation GOLD came up with mixed results. While adjusted earnings beat expectations, revenues missed the same.
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Newmont Corporation (NEM) : Free Stock Analysis Report
SPDR Gold Shares (GLD): ETF Research Reports
abrdn Physical Gold Shares ETF (SGOL): ETF Research Reports
Barrick Gold Corporation (GOLD) : Free Stock Analysis Report
United States Oil ETF (USO): ETF Research Reports
VanEck Gold Miners ETF (GDX): ETF Research Reports
Invesco DB Precious Metals ETF (DBP): ETF Research Reports
