Benchmark index in major swoon, down 47% so far this year; 'rough ride'
If you think gold has taken a beating this year, consider the case of gold mining companies.
The Market Vectors Gold Miners (GDX) ETF closed trading on Monday at 23.75 — a staggering 47% drop for the year. By comparison, the price of gold itself is down by about 20% for the year, to $1,284.80 per ounce. Meanwhile, the SPDR Gold Shares (GLD), an exchange-traded fund which invests in physical gold, has fallen 18.67% during that same time period.
Among individual stocks, Miner Barrick Gold Corp. (ABX) is down about 55% year to date, while Newmont Mining Corp. (NEM) is down about 38%.
“When gold was doing extremely well, gold miners took off the gold hedges to expose their stock prices to gold prices, because one of the main selling points for miners is providing leveraged access to gold prices,” said Samuel Lee, ETF strategist at Morningstar Inc.
The lack of hedges worked well for publicly traded gold miners when bullion prices were headed up. It has zapped miners, however, as the price of the precious metal retreated in recent months. That drubbing was made even worse by last week's Federal Reserve announcement, which ignited fears about a further rise in interest rates.
“Gold miners and gold are on the decline because the market believes interest rates will go up, which makes the opportunity cost of holding gold a lot higher,” said Mr. Lee. “So people move out of gold. If interest rates continue to rise, gold will be in for a rough ride.”
Then again, some experts say the sell-off presents a yawning opportunity.
“When the newspapers and magazines say that the world is coming to an end for the miners, and the stocks look like they're going to go out of business, and the debt analysts start to downgrade debt of the miners, that is when you should make it a big part of your portfolio,” said Vadim Zlotnikov, chief market strategist of AllianceBernstein at a press conference last week. “It always corrects.”
Allocations to commodities as a whole have sagged. About a third of asset allocators are currently in underweight positions, according to the June fund manager survey released by Bank of America Merrill Lynch.
