360° Coverage : Could Certain Commodities ETFs Yield a Potential Gold Mine For...

2 Updates

Could Certain Commodities ETFs Yield a Potential Gold Mine For Investors

Feb 19 2014, 12:27pm CST | by

2013 marked the worst year for gold since 1981. It was the first negative year in 12 years, down -27%. This was mainly attributed to a lack of inflationary pressures and a booming developed equity...

Filed under: news

 
 
 

34 weeks ago

Could Certain Commodities ETFs Yield a Potential Gold Mine For Investors

Feb 19 2014, 12:27pm CST | by

2013 marked the worst year for gold since 1981. It was the first negative year in 12 years, down -27%. This was mainly attributed to a lack of inflationary pressures and a booming developed equity market. Huge outflows were seen in gold funds and gold ETFs. The largest gold ETF, SPDR Gold Shares (GLD), lost over one third of its assets under management. Gold mining ETFs fared even worse, as Market Vectors Gold Miners ETF (GDX) fell over -54% in 2013, marking the third consecutive year of losses. Junior miners (GDXJ) were down over -60% in 2013.  With gold prices way down, is it finally time to buy back into precious metals?

Gold as a Hedge
/>
Markets got off to a rough start in January and that spilled into early February with the VIX spiking. The 10 year treasury yield fell to almost 2.6%, despite a general consensus of continuing rising rates. Equities typically start the year off strong due to the “January Effect” – a period when most investors rebalance portfolios – yet the S&P 500 lost -3.5% in the first month of the year. The Market Vectors Gold Miners ETF (GDX) exhibits a correlation coefficient of just 0.19 to the S&P 500 and as markets corrected in January, GDX gained an impressive 11%. While markets have rebounded somewhat in February, heightened volatility still exists. Having a low correlation to the market is what you want in an environment that is prone to big market swings.

Global Gold

The rising rate outlook in the US has been deemed a headwind for gold markets. However, if real wages grow in line with rising rates, demand for gold could increase as well. A study conducted by WGC’s “Gold Investor” report showed that gold returned 60% from October 2003 to October 2006 as US real interest rates rose from -1% to 3%. On an international scale, US demand for gold only accounts for less than ¼ of total global aggregate demand.  While the US may be entering a phase of tighter monetary policy, the majority of notable world governments are still currently engaged in a period of increased spending, borrowing, and monetary printing, all of which present tailwinds for the global gold market.

Focus on the Mines

Gold mining stocks are some of the cheapest equities currently available to investors. The below figure shows that gold producing companies are currently trading much lower than their historical average P/NAV multiples. 2013’s major selloff in gold mining stocks brought a wider valuation gap between physical gold and gold mining share prices. Comparing the miner focused Philadelphia Gold and Silver Index to the spot price of gold shows a current ratio of about .075 (current index at 98, spot price at $1,300). In the past 30 years, the ratio was typically above 0.2, suggesting that the mining index is currently undervalued.

Mining stocks offer exposure to gold with reduced exposure to fluctuations in gold prices as a company’s structure can give it the ability to absorb price changes. Gold prices do not necessarily need to appreciate to drive returns in mining stocks, rather a stabilizing gold price can generate results through decreased fixed mining costs. Barrick Gold Corp (ABX) is GDX’s top holding with an allocation of over 13%. As gold prices corrected in 2013, companies like ABX shifted their business models to focus on cutting costs in order to drive profits. Barrick Gold took action in 2013 selling multiple mines in Western Australia as well as selling its energy arm, which brought in $3B in a share sale to help cut debt.

Takeaway

Gold, and more specifically gold mining stocks, were oversold in 2013. US inflationary pressures may not be as influential, yet outlook for the global gold market is positive through 2014. It is highly unlikely that equity markets will return remotely as much as last year, making diversification a strong theme for 2014. Buying into the gold mining sector right now is a very cheap way to hedge against upcoming market corrections while also adding strong real asset diversification to your portfolio.

Source: Forbes Business

 
Update
2

7 weeks ago

Khazanah throws MAS RM6b lifeline

Aug 29 2014 5:01pm CDT | Source: Business Times Singapore

August 30, 2014 1:15 AMKHAZANAH Nasional will inject RM6 billion (SS$2.4 billion) over three years to resuscitate loss-making Malaysia Airlines (MAS) under a recovery plan that includes even an Act of Parliament. Other key moves are migrating its operations, assets and liabilities to a new company (NewCo) and slashing the workforce of 20,00 ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 
Update
1

7 weeks ago

MAS posts loss of RM307m for Q2

Aug 28 2014 5:00pm CDT | Source: Business Times Singapore

August 29, 2014 1:13 AMMALAYSIA Airlines (MAS) registered a loss of RM307 million (S$122 million) for the second quarter to end-June, but warned of worse to come in the second half when the "full financial impact of the double tragedies of MH370 and M ...
Source: Business Times Singapore   Full article at: Business Times Singapore
 

 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

China stocks open higher
Beijing, Oct 20 (IANS) Chinese stocks opened higher Monday with the benchmark Shanghai Composite Index opening at 2,346.05 points, up 4.87 points, or 0.21 percent.
 
 
US defence department to create medical team for Ebola
Washington, Oct 20 (IANS) The US Department of Defense said Sunday the military is creating a 30-member team which will be tasked with providing emergency assistance in case of Ebola virus infection in the country.
 
 
Israel's Tamar gas field to sell gas to Egypt
Jerusalem, Oct 20 (IANS) Israel's Tamar gas field announced Sunday they have signed a bid to sell at least five billion cubic meters of natural gas over three years to private consumers in Egypt.
 
 
Liberian president calls for global support to fight Ebola
Monrovia, Oct 20 (IANS) Liberian President Ellen Johnson Sirleaf Sunday called on the international communities to join the country to fight the Ebola virus disease.
 
 
 

Latest from the Network

Bush shoe-tossing painting hits record at Doha auction
Doha, Oct 15 (IANS/EFE) A controversial painting by Iranian artist Mahmud Obaidi, depicting an Iraqi journalist throwing shoe in 2008 at then US president George W. Bush, was sold for $62,500 at a Sotheby's auction in...
Read more on Celebrity Balla
 
US offers $45 mn bounty for eight terror leaders
Washington, Oct 15 (IANS) The US said Tuesday it is offering rewards totalling up to 45 million dollars for information on eight key leaders of the Al Qaeda in the Arabian Peninsula (AQAP) terrorist organisation. The...
Read more on Politics Balla
 
UNSC extends peacekeeping mission's term in Abyei
United Nations, Oct 15 (IANS) The UN Security Council (UNSC) has renewed the mandate of the UN peacekeeping mission in the Abyei border region between Sudan and South Sudan. In an unanimously adopted resolution, the...
Read more on Politics Balla
 
Ebola cases in West Africa could reach 10,000 per week: WHO
Geneva, Oct 15 (IANS) The World Health Organisation (WHO) has warned that the Ebola epidemic in West Africa could reach 5,000 to 10,000 cases per week by the first week of December. "Quite frankly, ladies and...
Read more on Business Balla
 
Turkey, Singapore sign strategic partnership agreement
Ankara, Oct 15 (IANS) Turkey and Singapore have signed a strategic partnership agreement to boost economic, political and cultural cooperation, as well as security collaboration, during the official visit of...
Read more on Politics Balla
 
Christina Aguilera is returning to 'The Voice' USA
Christina Aguilera will return to 'The Voice' USA next year. The 'Your Body' hitmaker, who previously shared a rotating spot on the judging panel with Shakira, has been replaced by Gwen Stefani this season as she is...
Read more on Celebrity Balla
 
Kesha's music producer hits back
Kesha is being countersued by her record company boss, Dr. Luke. The 41-year-old music producer, who runs Kemosabe Records, claims the 27-year-old 'Tik Tok' singer is a liar and is trying to extort him after she accused...
Read more on Celebrity Balla
 
Jason Derulo won't get back together with Jordin Sparks
Jason Derulo insists his split from Jordin Sparks is permanent. The 'Talk Dirty' hitmaker, who recently ended his relationship with the 'No Air' singer after three years of dating, has ruled out getting back together...
Read more on Celebrity Balla
 
Josh Groban feels 'very lucky' to be dating Kat Dennings
Josh Groban feels ''very lucky'' to be dating Kat Dennings. The 'Brave' hitmaker was very nervous before singing in front of the '2 Broke Girls' actress for the first time at the Carousel of Hope Ball in Beverly Hills,...
Read more on Celebrity Balla
 
Australian Richard Flanagan wins 2014 Man Booker prize
London, Oct 15 (IANS) The first Man Booker prize to allow American nominees was Tuesday night won by an Australian, with Richard Flanagan triumphing for a novel of love and war that tells the harrowing stories of...
Read more on Celebrity Balla