After posting the best first half since its inception in 2006, the ETF declined in the third quarter as funds cashed in gains on concern the Federal Reserve will raise interest rates, curbing the investment appeal of non-interest bearing gold. At the same time, longer-term investors took advantage of a price pull-back by boosting holdings 20 percent, pouring in $1.9 billion into VanEck Gold Miners, the most since the $2.3 billion in 2011, when prices of the precious metal climbed to a record, data compiled by Bloomberg show.
Still, even with the cost cuts, miners’ prospects depend heavily on the outlook for gold
prices, and a continued decline would hurt the companies’ balance sheets and drag valuations lower, said Dan Denbow, a portfolio manager at the $782 million USAA Precious Metals & Minerals Fund in San Antonio.
“If gold goes down, you’re going to lose more than just the dividend,” Denbow said in a phone interview. “When they’re buying gold miners, they’re thinking it’s going to go higher. That could be the only bet.”
Mariann Montagne, a senior analyst and portfolio manager at Gradient Investments who helps oversee $1.1 billion, is counting on a rally in major gold producers and the precious metal to expand, even as she exited her holdings in another ETF tracking junior miners before the end of June.
“We rebalanced our portfolio, but we left that part intact,” Montagne said in a telephone interview, referring to the VanEck ETF that tracks the senior producers. “We thought we’d just ride that a little longer.”