Gold miners and the related exchange traded funds (ETFs) are grappling with lower bullion prices, but there are some compelling fundamental factors that could bode well for the group. The VanEck Gold Miners ETF (GDX ), the largest gold miners ETF, is lower by 7.67% over the past month.
The precious metals mining industry has also been on the road to improved efficiency as they cut costs, increase production and raise more money. Supporting the bullish thesis for ETFs such as GDX is that many gold miners are finding ways to boost output while keeping a lid on costs.
“Quarterly gold production reported by publicly-traded companies accounts for about 65-70% of total global gold production and can be considered an indicator of the overall state of the global gold mining industry,” reports Mining.com.
Boosting the case for gold is that the Federal Reserve recently alluded to no more rate hikes for the rest of 2019 after initially forecasting two. The capital markets initially expected rates to remain steady after the central bank spoke in more dovish tones following the fourth and final rate hike for 2018 last December.
Cost-Conscious Mining Companies
GDX is comprised of global gold miners, with a notable tilt toward Canadian and U.S. mining companies. Stock fundamentals like cost deflation across the mining industry, share valuations below long-term average and rising M&A are all supportive of the miners space as well, but those fundamentals could be glossed over if the dollar strengthens.
“Reported global average quarterly all-in sustaining costs were 3% lower than in Q3 2018,” according to Mining.com. “Overall, gold producers reacted relatively quickly to the deteriorating gold market conditions and managed to reduce their costs by making efforts to catch up with shrinking margins.”
The stabilized Q4 operating income is also partially attributed to the improving market conditions. Investors’ confidence in the gold mining industry, which was at a low in the third quarter, has been improving alongside gold prices since the last months of 2018.
“Global average all-in sustaining costs (AISC) fell 6% during the course of 2018, or from $1,050/ozt in Q1 to $988/ozt in Q4 2018,” reports Mining.com. “This indicates that companies overall continued to react quickly when the gold price declined. In Q4 2018, nine out of the top 10 lowest cost mines further decreased their AISC compared to Q3 2018.”
For more information on the precious metals market, visit our precious metals category.