Gold equities and related exchange-traded funds listed on the TSX are about to enter their strongest period of the year. What are the prospects this year?
The period of seasonal strength for gold mining equities is from July 27 to September 25. The trade has been profitable in 13 of the past 18 periods for an average return per period of 7.98 per cent.
The S&P/TSX Global Gold Index at 194 has a positive intermediate technical setup. Since mid-2013, the benchmark has been charting what appears to be a reverse head-and-shoulders bottoming pattern, a bullish setup that suggests significantly higher prices should price break above the neckline around 215. Implied target of the pattern points to 280, or over 40 per cent higher than present levels. The index trades above its 20, 50, and 200 day moving averages and strength relative to the price of gold has been positive for the past seven weeks.
A word of caution! Second-quarter reports from major gold producing companies will be less than encouraging when released starting next week. Earnings and revenues on a year-over-year basis have been impacted by lower gold prices and higher production costs.
Canadian investors can choose between four ETFs that offer exposure to gold mining companies. Each ETF has unique characteristics:
The most actively traded gold equity ETF in Canada is the iShares S&P/TSX Global Gold Index Fund (XGD) The fund tracks the performance of 37 precious metal mining companies that make up the S&P/TSX Global Gold Index. The index is capitalization-weighted. Largest holdings include Goldcorp, Barrick Gold, Newmont Mining, Agnico Eagle, Franco-Nevada, and Yamana Gold. Management expense ratio is 0.60 per cent.
Horizons offers the BetaPro S&P/TSX Global Gold Bull + ETF (HGU). The leveraged ETF track the performance of the S&P/TSX Global Gold Index by offering twice the daily performance of the benchmark. Management expense ratio is 1.15 per cent.
Horizons also offers the Enhanced Income Gold Producers ETF (HEP). The ETF tracks the performance of a portfolio holding an equally-weighted basket of 13 senior global gold and silver producers. At or near the money listed call options are written against security positions. Option premiums and dividends earned by the fund are distributed to unit holders on a monthly basis. The strategy is enhanced by high implied volatilities on the call options of senior gold producer stocks. Management Expense Ratio is 0.65 per cent.
Bank of Montreal offers the Junior Gold Index ETF (ZJG). The ETF tracks a diversified portfolio of 19 junior gold stocks that make up the Dow Jones North American Select Junior Gold Index. The index is capitalization weighted. Largest holdings are Royal Gold, New Gold, Detour Gold, B2Gold, and Iamgold. Management Expense Ratio is 0.63 percent.
Disclaimer: Comments, charts and opinions offered in this report by http://TimingTheMarket.ca and http://EquityClock.com are for information only. They should not be considered as advice to purchase or to sell mentioned securities. Data offered in this report is believed to be accurate, but is not guaranteed. Don and Jon Vialoux are Research Analysts with Horizons ETFs Management (Canada) Inc. All of the views expressed herein are the personal views of the authors and are not necessarily the views of Horizons ETFs Management (Canada) Inc., although any of the recommendations found herein may be reflected in positions or transactions in the various client portfolios managed by Horizons ETFs Management (Canada) Inc.