There has been a striking divergence in flows of gold bullion and gold equity ETFs. 

Over the last two months, gold bullion ETFs have seen steady outflows, with bullion holdings falling 3.2%. Over the same period, gold equity ETFs VanEck Vectors Gold Miners ETF (GDX) and VanEck Vectors Junior Gold Miners ETF (GDXJ) have seen their share counts increase steadily by 19.8% and 10.2%, respectively. 

Gold Bullion ETFs vs.
VanEck Vectors Gold Miners ETF vs.
VanEck Vectors Junior Gold Miners ETF

Source: Bloomberg

We do not know what is causing the divergence. However, we suspect that it might be positioning by investors aware of the valuation discount in gold miners. Indeed, RBC Capital Markets calculates average price/cash flow for mid-tiers and majors of roughly 7x, compared to a long-term average of 11x.

About the Author:

Joe Foster has been Portfolio Manager for the VanEck International Investors Gold Fund since 1998 and the VanEck – Global Gold UCITS Fund since 2012. Mr. Foster, an acknowledged authority on gold, has over 10 years of dedicated experience in geology and mining including as a gold geologist in Nevada. He has appeared in The Wall Street Journal, Barron's, and on Reuters, CNBC and Bloomberg TV. Mr. Foster has also published articles in a number of mining journals, including Mining Engineering and Geological Society of Nevada.

The article above is an opinion of the author and does not necessarily reflect the opinion of MV Index Solutions or its affiliates.