Daily ETF Roundup: GDX Crumbles On Gold’s Fall, XLV Rises On Deal News

by on May 2, 2011 | ETFs Mentioned:

American equity markets initially soared Monday on news that Osama bin Laden was killed by U.S. forces in Pakistan, but lost momentum after lunch and finished the day in the red. The Dow finished the day down by three points while the S&P 500 and the Nasdaq posted losses of 0.2% and 0.3%, respectively. Commodity markets also showed some significant weakness on the day as a stronger dollar in much of the session helped to push demand for these products sharply lower. Gold fell by about $12/oz. while oil sank by about $.80/bbl as well. Larger losses were seen in some of the smaller commodity markets as many of the softs, such as corn and cotton, declined by more than 2% in the session However, all of these losses paled in comparison to silver which declined sharply for the day. At one point, the white hot metal, which at one point was nearing the $50/oz. mark, sank by over 10% on the day, plunging below the $44/oz. level. Today’s sharp losses were largely due to an increase of margin requirements for traders, news that pushed a number of investors out of the silver markets in near record levels.

One of the biggest gainers in the ETFdb 60 on the day was the Health Care Select Sector SPDR (XLV) which gained 1% in Monday trading.  Today’s gains in this popular ETF came as investors digested further commentary regarding key earnings reports from Friday, in which both Merck and Abbott revealed solid quarters. Both of these companies, which are top five components of XLV, saw their shares rise by more than 1% on the day, undoubtedly helping to boost broad sentiment for the industry. Meanwhile, news from the generic segment of the market also helped to increase investor interest, as Israel-based Teva Pharmaceutical agreed to buy Cephalon for $6.8 billion. This report, which sent shares of both companies up by more than 3% on the day, also led many to think that a number of other smaller biotech or pharma firms could be scooped up in the weeks ahead, possibly starting a wave of M&A activity in the industry and boosting demand for XLV in the process [see charts of XLV here].

One of the biggest losers in the ETF world was the Market Vectors Gold Miners ETF (GDX), which tumbled by 3.3% in today’s session. Today’s losses came as demand for the safe havens such as gold dried up in light of declining geopolitical risks and quality earnings reports. Since gold miners are often seen as a leveraged play on gold prices, it should come as no surprise to investors that GDX was down far more than its underlying metal was in the session. In fact, top component Barrick Gold Corp (ABX) sank by more than 3.0% in the session while number two holding Goldcorp (GG) sank by a whopping 5.6% on the day. All of this came despite gold only dropping about 0.7% in the session, further underscoring just how much of a leveraged play GDX can be on the underlying metal, especially during volatile markets [see fundamentals of GDX here].

Disclosure: No positions at time of writing.