Thursday, 30 November 2017

Miner ETF's going down with the herd

Miner ETF's are not a valid alternative to avoid the lagging of precious metal miners compared to bullion or bullion ETFs.

The 'contributor driven explorer and junior miner spreadsheet' was started by end October 2011.  A textbook example of ill timing: precious metals were over their peak and miners had started their bear market.  After lagging precious metals during their rally to the 2011 all-time-highs, miners were promptly leading on the way down.

Following table provides an overview of current prices on Nov 29, 2017, historic prices on Oct 29, 2011, called "Reference" and the percentage performance "Gain2Date". Historic prices were corrected for (reverse) splits or "share roll downs" if you prefer that term.

 Table 1

Quote
Price
Date
$Change
First
High
Low
Volume
%Change
Reference
Gain2Date
GDX
22.5
11/29/2017
-0.430
22.77
22.77
22.471
54138809
-1.88%
59.02
-61.88%
GDXJ
31.71
11/29/2017
-0.590
32
32.09
31.655
10900370
-1.83%
129.52
-75.52%
GOEX
21.295
11/29/2017
-0.465
21.62
21.75
21.2748
11439
-2.14%
108.88
-80.44%
SIL
31.04
11/29/2017
-0.490
31.2
31.2624
30.9
546074
-1.55%
73.89
-57.99%
NUGT
28.6
11/29/2017
-1.670
29.53
29.56
28.44
8104878
-5.52%
3290
-99.13%
DUST
27.03
11/29/2017
1.430
26.15
27.15
26.1
6210982
5.59%
836.25
-96.77%
GLD
122.04
11/29/2017
-0.760
122.24
122.33
121.74
6133650
-0.62%
169.94
-28.19%
SLV
15.64
11/29/2017
-0.270
15.76
15.79
15.59
9101712
-1.70%
32.92
-52.49%
^HUI
185.864
11/29/2017
-3.481
187.419
187.527
185.376

-1.84%
568.21
-67.29%
^XAU
79.651
11/29/2017
-1.490
80.309
80.510
79.436

-1.84%
203.36
-60.83%

As a benchmark, both the HUI miners index and the XAU miners index were added. The HUI is the AMEX basket of unhedged gold miners quoting on US markets. The XAU is the Philadelphia Gold and Silver miners index. The bullion ETF's GLD and SLV give an idea of where precious metal prices went. Bullion ETF's lag only little compared to bullion. Fees include storage costs.

Both precious metal mining indexes are down vastly more than is gold. Among mining ETF's GDX, which was launched in 2006  by Van Eck, is down in line with the mining indexes. Diversifying to juniors has not been a good idea in this miner bear market:  both GDXJ and GOEX were awful bets over the long haul. Remarkably, SIL (Global X silver miners ETF) slid only little more than did silver.  Moreover, much of the damage was incurred since summer 2017, when SIL started lagging, almost uncoupling from the silver bullion price.  Silver was hit much harder during the 2011-2015 precious metal bear market as it lost over half its value since end Oct 2011.  As such you were not much better off holding SIL as compared to GDX.

Predictably, the leveraged miner ETNs were awful investments over the long haul. Direxxion, which issues these products, warns against holding these trading tools over longer periods. They are not investment vehicles.  This topic was treated before in "Leveraged Exchange Traded Funds: a Traders Tool"

Conclusion

Miners outperforming the metals quite often is a rewarding tactic during the short precious metal rallies, as we experienced during the better half of the 2016 boom-bust cycle. Until September of this year, even the recovery gains from the Dec 2016 trough still was a nice play.
However, we need to acknowledge that investing in precious metal miners is but a poor long-term strategy.  As 2017 draws to its end, we may conclude that it has been another year of "Miners persistently lagging the metals" as illustrated in this previous blog article.

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