Gold's 'staying power' attracts investors to VanEck mining ETF

[NEW YORK] The largest exchange-traded fund that tracks gold miners attracted the most speculators in the latest sign of growing interest in the precious metal.

VanEck Vectors Gold Miners ETF's call and put options open interest, a tally of outstanding contracts, is hovering near an all-time high reached on Thursday after the metal climbed. The fund that trades under the ticker GDX climbed 36 per cent this year, more than double the pace of gain for the precious metal.

Investors are finding refuge in gold and the companies that produce the metal as financial markets get whipsawed by the escalating trade war between the US and China. The value of the Bloomberg Barclays Global Aggregate Negative Yielding Debt index climbed to a record US$15 trillion on Monday, reinforcing the case for owning bullion to protect one's wealth. The mining companies look even more appealing as higher prices of the metal boost their cash flow.

"When gold goes up a certain amount, the earnings go up by a larger percentage," Joe Foster, a portfolio manager and strategist at VanEck, said in a telephone interview on Tuesday. "Investors are starting to gain conviction that this gold rally has some staying power and that's where you're starting to see people come into these gold stocks and you're seeing more buying in the bullion ETFs."

Bullion climbed 15 per cent this year amid mounting speculation that the Federal Reserve will keep cutting interest rates to support the US economy as the deepening trade war clouds the global growth outlook. The metal settled 0.7 per cent higher at US$1,474.42 an ounce in the spot market on Tuesday in New York, according to Bloomberg generic pricing.

In the first quarter, when gold prices rose 1 per cent in the spot market, pre-tax margin of the senior miners tracked by Bloomberg Intelligence turned positive, averaging 11 per cent, the highest since early 2018.

"Investors are finally starting to buy into the notion that higher gold prices are here to stay," Bloomberg Intelligence analyst Andrew Cosgrove said in an email. Higher gold prices translate to "more operating leverage on the mining side, no doubt. That said, the real buy in from the generalist crowd hasn't even started yet".

BLOOMBERG