Gold Miners ETF In Trouble As Gold Prices Fall

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ETF TRADING RESEARCH
Gold Miners ETF In Trouble As Gold Prices Fall
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• Hi, My name is Corey and Im with ETF Trading
  Research, today were reviewing our recently
  published article

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• Gold Miners ETF In Trouble As Gold Prices Fall

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• Gold prices are below 1,100 per ounce. Thats a
  five-year low and right at the price from six
  years ago. Heres what a chart of the round trip
  gold has taken over the last six years.

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• Gold has lost much of its appeal as an
  investment. Its status as a store of wealth
  benefited from the financial crisis back in 2008.
  And the strong performance in those years brought
  in many trend followers in the following years.

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• But those days came to an end in 2011. The
  recovery from the financial crisis gave people
  confidence to invest in risk assets like stocks
  and bonds that offer more than a store of wealth.

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• It continued to decline as the performance sagged
  and trend follower jumped off the bandwagon. And
  today the strengthening US Dollar and a potential
  interest rate hike continue to put pressure on
  the price of gold.

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• Impact Of Falling Gold Prices On The Gold Miners
  ETF

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• Gold miner ETFs like the Market Vectors Gold
  Miners ETF GDX face some serious headwinds from
  the decline in gold prices. GDX holds a basket of
  stocks that are primarily involved in mining for
  gold.

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• It currently holds 40 stocks and has an expense
  ratio of 0.53. The decline in gold prices has
  led to a practice called high grading. This is
  when a company only extracts the gold thats
  easiest to get out of the mine.

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• This technique boosts current production and
  lowers costs. But it does so at the expense of
  maximizing the output of the mine over the long
  run.

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• According to some reports, this process has
  rendered more than half of all gold on the books
  at gold miners unreachable. It isnt really
  available to be produced because the cost to mine
  it is more than the price of gold.

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• Needless to say, if gold miners were to come out
  and cut their proven reserves in half the value
  of their stocks would plummet and so will GDX.

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• The Ugly Future For The Gold Miners ETF

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• The process of high grading a mine will only
  last so long. The typical life span of mine is
  only 5 years when the gold miner only produces
  the gold thats easiest to get out of the ground.

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• So, the end of the line will come sooner rather
  than later as gold miners will soon start to run
  out of gold thats able to be mined at a profit.
  Until then, gold miners will continue to flood
  the market with more gold than ever.

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• Theyll provide more supply than there is demand.
  And that will continue to drive gold prices down
  and gold miner profitability down.

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• The Silver Lining For The Gold Miners ETF

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• At some point in the next few years, the amount
  of gold that can be produced at a profit with
  gold below current prices will diminish quickly.
  The supply of gold will slow and could lead to
  higher prices in the future.

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• These types of situations typically resolve
  themselves naturally in a free market. The weaker
  players are forced out. They go bankrupt or the
  sellout to a bigger stronger company.

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• In other words, expect a major consolidation in
  the industry through mergers and acquisitions.
  This should leave a much smaller but more
  profitable and stronger gold mining industry.

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• Thats the time to make an investment in an ETF
  like GDX. Until then, resist the urge to buy this
  ETF even though it looks cheap compared to where
  it was a few years ago.

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• You can also check out this article on falling
  gold prices And this one on other Gold ETFs for
  more information on investing in gold.

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