All that Glitters is Not Gold

Shares in gold miners took a dive in February

Lee Davidson 4 March, 2013 | 11:43AM
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Exchange-traded funds (ETFs) tracking the shares of gold miners saw their prices plummet in February to the tune of -10% to -13%. These ETFs were some of the worst performers out of the entire exchange-traded product (ETP) universe for the month of February:

UBS (Irl) ETF plc - Solactive Global Pure Gold Miners (USD) A-dis (GBP) (UC53)
-12.87%

iShares S&P Commodity Producers Gold (IE) (SPGP)
-10.67%

Gold miners have historically been poor capital allocators and are highly dependent on external debt and equity markets for financing, which may dry up during periods of market distress, explains Morningstar fund analyst Alex Bryan. This is, unfortunately, exactly the time when gold is most valuable, he said.

In the past few years, gold prices and the outlook for gold miners' share prices have been supported by central banks’ bullion purchases, but that trend may be shifting. While emerging market central banks have driven much of those gold purchases, Bryan notes that, “central banks in the developed world have started to view bullion as a strategic reserve asset and have curtailed their gold sales programs.”

Overall, consensus seems to be building that the current level of central bank purchases and private-sector investment may be on an unsustainable course and could reverse in the near future. Such an event would immediately harm the outlook for both gold and gold miners.

And the Best Performers Were...

On the other end of the spectrum, ETFs tracking emerging Asian equities were amongst the best performers in February 2013. In particular, ETFs tracking Indonesian equities returned between 10%-14% in February, those following Philippine equities surged by 12-13%, and those benchmarked to Korean equities produced gains of 8-10%.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
iShares Gold Producers ETF USD Acc GBP1,351.50 GBX1.20Rating
UBS ETF Solactive Glbl Pure Gld Mnrs USD GBP816.99 GBP-0.35Rating

About Author

Lee Davidson

Lee Davidson  is Head of Manager and Quantitative Research.

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