To The Moon

Summary

• Spot gold has generally kept pace with the S&P 500 in the past six years, according to Bank of America.
• Gold miners, as measured by the VanEck Gold Miners ETF, have more than doubled since late 2018, with major gains in recent months.
• GDX has grown significantly, with total assets under management increasing from $11.5 billion to nearly $14.0 billion since January.
• With a mid-teen P/E multiple and soft seasonal trends, I highlight key price levels to monitor heading into the summer.

J Studios

How powerful has the recent run-up in gold prices been? It turns out that spot gold has generally kept pace with the S&P 500 in the past six years, according to research from Bank of America. What’s more, gold miners, as measured by the VanEck Gold Miners ETF (NYSEARCA:GDX) have more than doubled (total return) since late 2018.

A chunk of those gains has come this year. Through May 28, gold is higher by 14% while GDX has returned 16%. The S&P 500 Trust ETF (SPY) boasts a strong 12% total return.

I reiterate a hold rating on GDX. I see the gold miner equity ETF as at a decent value, but after a key breakout earlier this year, momentum has paused somewhat ahead of what can be a tough calendar stretch.

BofA: SPX & Gold Flat to Each Other Last Six Years

BofA Global Research

Gold, GDX, and S&P 500 Returns Comparable Since Late 2018

StockCharts.com

According to the issuer, GDX seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the NYSE Arca Gold Miners Index, which intends to track the overall performance of companies involved in the gold mining industry. VanEck states that gold miners have historically provided leveraged exposure to gold prices, and the fund owns the largest global gold mining firms.

GDX has grown significantly since I last reviewed the product last winter. Total assets under management has swelled from $11.5 billion to nearly $14.0 billion as of May 27, 2024. The fund carries a moderate 0.51% annual expense ratio while its trailing 12-month dividend yield is small at 1.42% - GDX has paid out between $0.48 and $0.53 annually since 2021.

Share-price momentum has greatly improved from late last year, however. It’s rare to see an ETF swing from an F ETF Grade on momentum to an A-, but that is what GDX has done given the rally in gold prices and positive sentiment shift toward firms producing precious metals.

Still, GDX is a risky fund, evidenced by its high standard deviation in the past year as well as its concentrated portfolio. But GDX is among the more liquid ETFs you will find in the market – its average daily trading volume is more than 25 million shares while the fund’s 30-day median bid/ask spread is narrow at just three basis points, per VanEck.

Opening the aperture on the portfolio, the 4-star, Bronze-rated portfolio by Morningstar has turned more diversified from this past January, at least according to the current style box allocation. While more than half of GDX was considered large cap back then, just 43% of the holdings plot along the top row of the box today.

Furthermore, there is more value exposure and the ETF’s price-to-earnings ratio has dropped by almost a full point compared to early in the year despite the ETF’s appreciation. Of course, higher gold prices auger well for gold mining firms’ profit potential.

GDX: Portfolio & Factor Profiles

Morningstar

GDX is a niche product, with all of its invested assets in the Materials sector. So, prospective investors should expect the fund to perform in a much different manner compared to the S&P 500 and other broad equity ETFs. Also, keeping abreast of happenings with GDX’s largest few holdings is important given that the top five positions account for almost 40% of the fund.

GDX: Concentrated Allocation, Small Yield

Seeking Alpha

Seasonally, GDX often performs well in March and April, but then tends to struggle from May through November. While June and July have not been awful months in the past 10 years, the major bullish period on the calendar is now in the rearview mirror. So, this is a key risk for GDX holders, myself included, in the near term.

GDX: Neutral Seasonality Ahead Before An Often-Volatile Q3 Stretch

Seeking Alpha

The Technical Take

With a still-solid valuation and somewhat risky seasonal considerations, GDX’s chart is likewise mixed. Notice in the graph below that shares broke out from a downtrend resistance line during the sharp advance back in March. The rally took GDX above its then-flat long-term 200-day moving average, with the ETF pausing near the Q2 2023 highs just above $36.

But take a look at the RSI momentum gauge at the top of the graph – it remains firmly in bullish territory, ranging from 50 to 80. The 50dma is catching back up with the price while key support is seen in the $32 to $33 range – an area I noted as important resistance in January. The breakout through that zone helped send GDX to its next layer of resistance. A jump above the 2023 highs would be important as there is a high amount of shares traded from the current spot down to the high $20s – that would act as a support range on pullbacks.

Overall, the trend favors the bulls, but we have not yet seen a clean rally through last year’s highs.

GDX: Bullish Breakout, Shares Pause at 2023 Resistance, Strong RSI Trends

StockCharts.com

The Bottom Line

I reiterate a hold rating on GDX. Long the fund myself, I would like to see the ETF close above the 2023 peak on strong momentum. Keep your eye on $32 for support.