GDXJ ETF

For investors seeking momentum, VanEck Junior Gold Miners ETF GDXJ is probably on the radar. The fund just hit a 52-week high and is up 61.6% from its 52-week low price of $30.46/share.

Gold mining stocks have lagged gold prices in 2024, but the VanEck Junior Gold Miners ETF offers potential for growth in smaller mining companies. The GDXJ ETF focuses on small to mid-cap gold miners, providing global exposure and a Price-to-Book ratio of 1.69x. The ETF is volatile, with top holdings concentrated, but offers a diversified way to invest in junior miners without individual stock trading complexities.

Bubble collapses for large-cap U.S. stocks almost always feature initial substantial losses for gold mining and silver mining shares, followed by dramatic percentage gains. A combination of recent insider selling of gold mining and silver mining shares, the shares underperforming bullion, commercials being heavily short gold futures, and hedge funds being heavily long gold futures is likely to be followed by much lower prices for both gold and silver.

Gold miners have historically experienced explosive moves during gold bull runs, indicating potential for another outperformance. GDXJ has returned 35% since my first Buy coverage last year and has slightly outperformed Gold in this timeframe. Some top gold mining companies are showing positive growth in operational cash flow, suggesting they could become cash cows at current gold prices.

Investors purchase gold as a hedge against inflation, which is why the price of gold is expected to increase.

Gold prices remain above $2,000 per ounce, sparking a modern-day gold rush as miners search for the precious metal. The VanEck Junior Gold Miners ETF has not kept pace with the rise in gold prices, underperforming the bull market. Rising production and exploration costs, higher financing costs, and tightening credit have caused junior mining companies to struggle.

The VanEck Junior Gold Miners ETF provide exposure to small-cap gold and silver companies. Although I am bullish on the long-term prospects for gold and silver prices, I do not believe junior gold miners is the right way to express this view. Simply put, mining is a tough business that few people realize. There are a million and one ways that investors in junior gold miners can get burned.

The VanEck Junior Gold Miners ETF is at risk due to the rise in real bond yields, which have had a history of undermining gold mining stock valuations. With the Fed maintaining tight policy and free cash flows already in decline, investors may begin to price in rising default risk in the sector, driving down valuations further. Long term, while I expect a major reversal in monetary policy driving real bond yields back below zero, the GDXJ is a risky way to position for such an outcome.

Gold prices have remained flat in the last two months despite a weaker US dollar. The GDXJ ETF, which tracks small-cap companies involved in gold and silver mining, has underperformed the S&P 500 over the last three months. Despite a high valuation and weak seasonal trends, the ETF has potential for growth if it can rally above the $42 level.