Welcome back Eirene Family to another Market Standpoint article. Before we begin on what we have brought out this time, we would like to acknowledge what we all are mutually going through - The COVID-19 situation. We at Eirene do believe that there is much more to life than Financial Markets, it is one’s health & the well-being of your loved ones that deserves utmost attention today. Here’s to sending out strength and love to everyone with the optimism that this too shall pass and the human race shall win this battle as well.
We at Eirene believe that at any given point, there is always a Bull Market happening in some part of the financial markets. With excess liquidity in the markets, a near to 0% interest rate regime in USA and fundamental delay of resumption of business activities, it is Gold which is making headlines since quite some time now. This write-up is a continuation of the series of Gold articles and updates we have so been posting here since last year. This time however there will be an added twist to it as we see something happening which has not happened in Gold in the Bull Market that it has been on since 2019. So let’s dive deep into it!
Gold has now reached an important stage where technically there are not many overhead resistances left and it becomes imperative to play the trend (which we ardently have been playing) along-with a dynamic companion of it being the Gold Miners Equity ETF which is shaping up to possibly do something in it. The ETF is way off the highs and it could serve as a compliment to Gold as it moves higher.
Miners ETF, Gold Miners ETF - what is it all about?
A Miners ETF has assets which typically comprises of publicly traded companies involved in the mining of Gold, Silver and Precious Metals. It is an investment fund traded on stock exchanges, much like stocks. One such Miners ETF which predominantly tracks Gold is VanEck Vectors Gold Miners ETF (Symbol : GDX). VanEck is an investment management company which has created this ETF for the investors. GDX is one of the most liquid vehicle for market participants to gain exposure to gold miners.
Primarily, GDX gives an exposure to major gold miners listed in USA and Canada. It does so by tracking the performance of NYSE Arca Gold Miners Index. Investors need to be mindful of the gold prices as well as the mining industry dynamics before creating an exposure in GDX. Once the overall environment is conducive i.e. gold prices on an upmove coupled with favourable mining capacity and margins, you can make a killing in the gold miners index.
To draw an analogy - Think of it as Nippon AMC creating Nifty ETF (VanEck has created Gold Miners ETF - GDX). An AMC by the name of Nippon develops an ETF by tracking the performance of Nifty 50 companies (VanEck has developed Gold Miners ETF by tracking the performance of NYSE Arca Gold Miners Index).
Does it represent the Global picture & what is it comprised of?
Yes, GDX aims to replicate the Global scenario for Gold (alongwith an added flavor of the mining industry) as much as possible. It has a total of 48 holdings which are spread out similar to how a Thematic Mutual Fund is set up. The top 10 holdings and it’s country weightage are as follows –
What does GDX suggest technically?
GDX has broken out of 7 year Stage 1 zone and is suggesting a Stage 2 break out. This has been accompanied by a strong shakeout in the chart that flushed all the weak holders out in the previous couple of months suggesting to us that this break out is here to stay. We would ideally want to see a retest of the resistance zone now turned into support zone before the script starts making its Stage 2 journey. Ideally levels of $39.25-$40.27 could be seen as future resistance points.
How does Gold look technically?
As you see above, Gold has continued its super trend it has been in since the past 14 months. It suggests it’s entry into Base 2 in the Stage 2 it is in, however this zone is marked with a lot of resistances of the previous All Time High region. That being said there is one last hurdle that remains for the counter and that is the band of $1795-$1805 which in our eyes is a huge resistance zone and will require something special to move out of. We at Eirene will be closely monitoring these levels for any signs but that being said we would like to stick to the trend at the same time.
Any ETF's out there in India?
Yes, one can seek investment exposure to gold via ETF's listed in India. This is a pure gold play, no miners stuff involved. This shall save you the physical gold making charges, storage cost, impact cost and moreover presents superb liquidity.
A unique observation in some of the Gold ETF's listed in India was decade-high volumes (observed in March and April 2020). It depicts the interest being garnered, and warrants close attention going forward. Has someone entered in it to win big?
HDFC Gold ETF -
SBI Gold ETF -
Nippon Gold ETF (Goldbees) -
We hope you learned something new today in exchange for your valuable time. In case you don’t want to miss out on any further articles do subscribe so that you get notified whenever we write an article. Happy Investing & be Eirene!