Gold-Miner ETF Jumps 30.8% in a Month, Beating Bullion Funds

Gold outshined: Gold-miner ETF jumps more than 30% in a month

Global gold-mining ETF rises 30.7% in one month

Higher gold prices magnify miners’ operating leverage

South Korea’s ETF market has been setting records this year. Net assets reached 500 trillion won ($360 billion) in the first half, marking a new milestone for the industry. Leveraged ETFs tied to Samsung Electronics Co. and SK Hynix Inc., listed at the end of May, have drawn attention beyond South Korea. ETFs, once viewed as supplementary investment tools, are now taking root as core portfolio products. ETF Zoom In takes a closer look at the increasingly complex ETF market. [Editor’s note]

An exchange-traded fund that invests in global gold miners has surged more than 30% over the past month, drawing investor attention. The rally reflects expectations that structurally higher gold prices will sharply improve miners’ margins.

Data from Koscom’s ETF Check showed that NH-Amundi Asset Management Co.’s HANARO Global Gold Mining Companies returned 30.78% in the month through Aug. 21, based on total return with dividends reinvested. That was the highest among ETFs listed on South Korea’s stock market.

The fund invests in shares of global gold-mining companies. As of Aug. 20, holdings with weights above 5% were Newmont Corp. at 12.53%, Agnico Eagle Mines Ltd. at 9.77%, Barrick Mining Corp. at 7.07%, Wheaton Precious Metals Corp. at 6.29% and AngloGold Ashanti Plc at 5.14%.

Newmont, the ETF’s largest holding, is one of the world’s biggest gold miners. Founded in 1921, it has operated for more than a century and is an S&P 500 constituent.

Investing.com data showed Newmont shares rose 38.00% in the month through Aug. 20. That compares with a 1.76% gain in the S&P 500 over the same period. The fund’s other holdings with weights above 5% also climbed sharply, including Agnico Eagle Mines at 49.72%, Barrick Mining at 27.22%, Wheaton Precious Metals at 36.64% and AngloGold Ashanti at 46.68%.

HANARO Global Gold Mining Companies also outperformed ETFs tied to gold futures or spot prices over the past month. KODEX Gold Futures(H) and TIGER Gold Futures(H) gained 11.77% and 11.48%, respectively, while ACE KRX Gold Spot and TIGER KRX Gold Spot rose 6.81% and 6.18%.

Gold-mining companies offer amplified upside when bullion prices rise. Because the industry has a high fixed-cost structure, higher gold prices can drive a sharp expansion in margins. Yuanta Securities Korea said all-in sustaining costs rose 16.2% in the first quarter from a year earlier, while gold prices jumped 49.4%.

Limited downside risk is another attraction. In the first quarter, about 99% of global gold production was generated at costs below prevailing gold prices. That means most miners can remain profitable even if gold prices retreat, limiting downside risk to margins.

Brokerages also see further upside for gold prices after the strong gains in global gold-miner ETFs. Their argument is that the key driver is not the level of interest rates, but why yields are rising.

Ko Kyung-bum, an analyst at Yuanta Securities Korea, said gold prices have continued to climb even after the 30-year US Treasury yield recently rose above 5.3%. When yields rise on growth expectations, gold prices tend to fall. When they rise on fiscal concerns, however, gold often moves higher.

Long-term yields have recently risen not only in the US but also in Japan, Germany and France. That suggests the move is being driven by a widening term premium tied to uncertainty over fiscal soundness. In that environment, yields rise while the dollar weakens.

Ko said the US Treasury recently doubled the size of its long-bond buybacks, but that step has limits in addressing the fundamental drivers of higher long-term yields. As long as concerns about fiscal soundness persist, weaker confidence in the dollar will likely support further gains in gold prices.

Lee Su, Hankyung.com reporter 2su@hankyung.com