Markets
Gold Miners Erased a 4.4% Loss in a Day as Gold Moved Back Toward $4,200
The VanEck Gold Miners ETF rose 4.34% on October 15, almost exactly undoing the previous day's 4.40% drop, while gold itself moved less than 2% each way. On Friday morning, December gold futures traded near $4,199.
Two days, two big moves, and almost no net change. The VanEck Gold Miners ETF (GDX) fell 4.40% on October 14 and rose 4.34% on October 15, closing at $87.02. Newmont, the largest gold producer, lost 3.49% and then gained 3.79% to $115.79. Over the same two sessions the SPDR Gold Shares ETF fell 1.49% and rose 1.79%.
That two-to-three-times ratio is not unusual. Over the past year GDX's daily moves have run at about 1.5 times gold's on average, and its annualised volatility has been about 51%, against 29% for GLD. The reason is operating leverage: a miner's profit is the gap between the gold price and its production cost, and that gap changes by a larger percentage than the metal.
The trigger on Thursday was the dollar and bond yields. The dollar index fell 0.54% and the 10-year Treasury yield dropped to 5.09%, lowering the opportunity cost of holding a metal that pays no interest. December gold futures rose 1.51% to $4,170.10, and on Friday morning they traded near $4,199. Silver futures were at about $58 and platinum about 2.4% higher.
The bigger picture is less exciting than the daily swings. Gold's one-year closing high came on January 29, and GLD is about 23% below it; GDX peaked on February 27 and is about 25% lower. Yet since January 1 the miners are up about 1.5% while gold is down 3.4% — profit margins built at higher prices are still supporting the shares.
For traders, the lesson of the week is about size rather than direction. Anyone holding miners as a gold trade is carrying two or three times the daily swings of the metal; a stop placed for gold's volatility would have been triggered on Wednesday, and missed Thursday's recovery entirely.