Gold’s recent ascent to record highs is having the predictable though still important impact of lifting shares of the companies that mine the yellow metal. For example, the VanEck Gold Miners ETF (GDX ) and the VanEck Junior Gold Miners ETF (GDXJ ) are both higher by 10.52% over the past month. With inflation still a concern in some parts of the developed world and with the Federal Reserve potentially eyeing multiple interest rate cuts in 2024, gold could build on its 2023 bullishness, perhaps lifting the VanEck exchange traded funds in the process.
Interestingly, history suggests that economic soft landings, which is what the Fed is aiming for, usually aren’t constructive for gold. However, it’s possible that 2024 could be a departure from the norm due to the U.S. presidential election, geopolitical tensions around the world, and other factors. Then again, soft landings are hard to engineer and the opposite scenario, should it materialize, would likely be a boon for gold.
Catalysts for Gold Upside in 2024
Underscoring the utility of GDX and GDXJ is the point that stock-picking among gold miners is difficult. Additionally, some holdings in those ETFs can overshoot gold’s moves in either direction, and forecasting which stocks will do that is tricky as well.
Fortunately, GDX and GDXJ do possess leverage to declining interest. History suggests that if the Fed lowers borrowing costs, gold stands to benefit notably.
“Lower nominal interest rates should bring a respite for gold: 75–100bps of policy rate cuts are likely to translate into no more than about c.40–50bps of longer maturity yield drops,” noted the World Gold Council (WGC). “We estimate this response given the bull steepening that has occurred during past soft landings and we also factor in continued term premium pressure, quantitative tightening, and high issuance supply in 2024. That drop in longer maturity yields, all else being equal, suggests a gain of about 4% for gold.”
Another factor could also bode well for GDX and GDXJ in 2024. Global central banks have been dedicated buyers of gold in recent years, providing support to the demand and price outlooks for bullion. That trend is expected to moderate, though continue next year.
“Purchases by official institutions have helped gold defy expectations over the past two years. In 2023 we estimate that excess central bank demand added 10% or more to gold’s performance. And they will likely continue buying,” added the WGC. “Even if 2024 does not reach the same highs as the previous two years, we anticipate that any above-trend buying (i.e. more than 450–500t) should provide an extra boost.”
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