Gold Mining ETFs Are Hot Now: Will This Continue?

Gold has been on a tear, thanks to the patient Fed and the investors’ flight to safety. The trend is likely to continue in the coming weeks as well.

In its FOMC meeting in January, the Fed put pause on interest rates hikes, which in turn raised the appeal of gold. Lower interest rates will continue to weigh on the dollar against the basket of currencies, raising the yellow metal’s attractiveness as it does not pay interest like fixed-income assets.

The U.S.-China trade talks, which led to speculation of higher gold demand from China, have also fueled optimism in the gold bullion market. Additionally, global growth worries, slowing growth in Chinese and European economies, Brexit concerns as well as geopolitical tensions continued to make investors jittery, raising the demand for safe haven avenues. Amid such a backdrop, gold is considered a great store of value and hedge against market turmoil.

Further, weak earnings trends bolstered the optimism in the gold outlook. Fourth-quarter earnings have been weak so far with growth materially below the pace set in the first three quarters of the year, and EPS beat percentage being the lowest in more than five years. The pace of growth is expected to decelerate further in the current quarter and beyond.  

Adding to the bullishness is the strong demand primarily driven by the central bank’s rapid increase in purchase of the gold. According to the World Gold Council, global gold demand grew 4% in 2018. The central banks across the globe accumulated $5.82 billion worth of bullion — the highest level since 1967, led by Russia. Retail investment in gold bars and gold coins also grew 4% in 2018.

Acting as a leveraged play on the underlying metal prices, metal miners tend to experience more gains than their bullion cousins in a rising metal market.

Given this, we have highlighted five gold mining ETFs that have delivered double-digit returns so far this year. These could be excellent plays for investors who believe that gold will continue to move higher.

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