Thursday’s ETF To Watch: Gold Miners ETF (GDX)

by on February 17, 2011 | ETFs Mentioned:

Thanks to ongoing geopolitical tensions in the Middle East, as well as news of Iran sending warships to Syria through the Suez Canal, investors have once again flocked to the traditional safe haven investment, gold. Although prices of the yellow metal are down considerably from their peak at the start of the year, gold has been trending back towards the $1,400/oz. mark once again. Yet, after yesterday’s disappointing performance in the silver markets thanks to Pan American Silver Corp’s soft outlook, investors are now beginning to wonder if the optimism about gold is destined to be a short-lived phenomenon or if gold miners can surge past their silver-focused counterparts in 2011. One company that should help to set the tone in this market is Canadian gold mining giant Barrick Gold Corp (ABX) which is scheduled to report earnings before the start of the trading session. Analysts are looking for the company to report earnings of $0.85 a share on revenues of $2.74 billion, although the range of estimates is extremely large; the high is at $1.02 a share with the low coming in at just 57 cents. Either way, it looks to be a safe bet that the company will outperform from the year ago period in which it posted EPS of 61 cents a share.

However, more focus is likely to be on the company’s plans for the future as well as its average cost per ounce of gold produced. Net cash costs in the most recent quarter were just $349/oz., slightly below the company’s target of between $350-$360 for the full year suggesting that the company should be able to meet expectations in this respect, while also allowing for a robust profit margin as well. Meanwhile, thanks to the company’s rock solid balance sheet and large cash reserves, investors will also likely focus in on two new mines that the company is developing in order to boost yearly production of the yellow metal up to nine million ounces. Should ABX detail smooth progress on these Caribbean and South American ventures, it could help to boost the stock and set a positive tone for the gold mining industry at large [read Gold ETFs: Boom Or Bust?].

Thanks to this earnings report, investors should look for the Market Vectors Gold Miners ETF (GDX) to remain in focus throughout today’s trading session. The popular fund allocates just under 16.5% of its total assets to ABX with double digit weightings also going to Goldcorp and Newmont Mining Corp as well. In total, GDX offers exposure to 25 gold mining firms throughout the world with the heaviest weightings going towards large and giant cap companies [see more on GDX's holdings page].

Should ABX fail to satisfy investors, especially given the runup in gold prices over the past year, look for GDX to sell off during Thursday trading. If, however, the company is able to post solid earnings and give a rosy outlook for the future, look for a number of smaller gold mining firms to jump as well, pushing GDX to new heights during today’s session [also read Precious Metal ETFs: Physical vs. Equity Exposure].

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Disclosure: No positions at time of writing.