Since February 24th, 2020, the VanEck Vectors Gold Miners ETF (NYSEAECA: GDX) has encountered losses of as much as -49.2% before buyers were able to establish a foothold and generate small corrective moves higher. However, most of those losses still remain visible in the market’s current valuation of the exchange-traded fund, and this means new buying opportunities may be present. Recent declines have been based on broader turbulence within the global financial markets, but since these moves are not based on significant changes in the earnings outlook for the industry’s most important mining companies, traders should view the recent drop in GDX as being a temporary and transient event because most of the evidence suggests bullish trends are likely to be seen in the coming months.
Source: Author, TradingView
Over the last one-week period, the VanEck Vectors Gold Miners ETF has been hit out outflows of -$327.8 million and this number nearly doubles when we assess the fund from a one-month perspective (at -$613.1 million). However, it is also important for investors to remember that these trends start to reverse when we look at the data from the last 13 weeks (which show outflows of just -$147.1 million) and bullish investors are still in the driver’s seat when we look at market trends over the last five years (which still show positive trends for GDX inflows, at $2.4 billion). Recent inflow/outflow figures related to GDX can be seen in the chart below:
Most of the regional exposure associated with GDX is centered in Canada, which creates some added advantages for investors that are still concerned about global trade ramifications over the long term. With all of the urgent discussion and commentary related to the coronavirus scare, it seems investors might be neglecting the underlying economic policies that will continue to influence metals markets long after the health crisis is finally under control.
Furthermore, earnings in the fund’s core holdings remain pointed in the right direction as prior gains in the underlying price of gold helped the outlook for profitability. In my view, two primary examples of well-positioned mining companies that will continue to guide trends in GDX can be found in Kirkland Lake Gold (NYSE:KL) and Newmont Corp. (NYSE:NEM).
In addition to the improved climate that still exists for precious metals assets, a series of strategic consolidation measures within the industry have finally started to pay dividends (quite literally) for shareholders that have faced difficulties during several different bearish periods over the last decade. Earlier this month, Kirkland Lake announced a substantial increase in its annual dividend (roughly doubling the previous payout of $0.06) as well as plans to buy back 20 million common shares through 2022. Recent successes have also been fueled in part by Kirkland Lake’s decision to acquire Detour Gold and plans to expand its exploration efforts. Similarly, Newmont Corp. reiterated plans to raise its annual dividend by nearly 80% and to complete $1.5 billion in new capital expenditures in 2020.
Given the bullish state of the broader metals market, it seems unlikely that recent declines in GDX have the fundamental momentum to continue traveling lower. In 2019, the underlying price of gold rose by 18.9%, completing its best annual performance in nearly a decade. Of course, most of the market’s central concerns persist and many of the same geopolitical fears that started last year’s rally in gold will continue to have the potential to guide the outlook for 2020.
But now that we have the coronavirus impact and a sustained collapse in the stock market to consider as additional factors, this should only incentive the production of precious metals as viable safe-haven assets. Ultimately, the gold miners could play a key role in the aftermath of this turbulent market environment because they are the producers one of the market’s few long-term safe-haven assets and this suggests recent declines in GDX might have created an excellent contrarian buying opportunity for investors.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.