Gold shares: can they sparkle in 2014?

It is no revelation that John Paulson and George Soros, two widely known hedge fund billionaires and large holders of Gold bullion felt the pain of 2013, with the yellow metal plummeting 28%. With Gold bullion forming an important base, will their equity counterparts, the Gold shares, be the point play that will see Gold regain its sparkle with 2014 being the golden opportunity for mean reversion of the gold sector?

Following a stellar year in 2013 January has seen a downward correction in developed markets. As the Federal Reserve embarked on its second month of tapering and with growth concerns in China the spike in volatility has seen growing investor jitters especially as the earnings season in Australia gets underway. With the increased fear gold bullion has climbed $38.90, or 3.2% in January to end at $1,244.55 per ounce, gold mining shares have had an even more dramatic reversal.

If we look at the chart below, two widely recognised Gold miner indices the NYSE Arca Gold miners Index (GDMNTR) representing Global large cap Gold miners and the Market Vectors Junior Gold Mining Index (MVGDXJTR) representing Global small and mid cap miners have increased 17.5% and 29.5% respectively year to date.

Source: Market Vectors, Bloomberg (as at 13 February 2014)
The above chart shows past performance of the NYSE Gold Arca Mining Index and the Market Vectors Junior Gold Mining index rebased to 1000 from 2 January 2014 to 13 February 2014. Past performance is not a reliable indicator of current or future performance, which may be lower or higher. You cannot invest directly in an index.

While it may take a year or two for GDP growth to return to historical norms there could be destabilising levels of asset inflation, consumer price inflation or other dislocations in the global economy which may create new fears that are supportive of gold and gold shares.

Australia is no stranger to Gold shares. Names such as Newcrest and Perseus have typically found their ways in portfolios as a means to mitigate inflation, risk and trade bullion’s stellar run over the last decade. With many Gold mining companies improving their approach to capital discipline 2014 could see an improvement in their business profitability and free cash flow.

With 19 gold mining shares in the Market Vectors Australian Emerging Resources ETF (ASX Code: MVE) which compose over 20% of the portfolio (as at 13 February 2014) MVE is a well-diversified, pure play and purpose-built investment for the most liquid energy and mining mid and small cap sector in Australia.

MVE could be the ‘golden opportunity’ for your portfolio.

To find out more about MVE please click here.

Important Notice 

This information is prepared in good faith by Market Vectors Investments Limited ABN 22 146 596 116 AFSL 416755 (‘MVIL’) as the Responsible Entity and issuer of units in the Market Vectors Investments Australian Sector ETFs (‘the ETFs’). This information is general in nature and does not take into account any individual’s objectives, financial situation or needs (‘circumstances’). Before making an investment decision in relation to the ETFs investors should read the current product disclosure statement (‘PDS’) and with the assistance of a financial adviser consider if the ETFs are appropriate for their circumstances. A copy of the PDS is available at marketvectors-australia.com or by calling the Registrar on 1300 MV ETFS (1300 68 3837). Investors can buy and sell units in the ETFs on the ASX via a stockbroker or financial adviser. MVIL is a wholly owned subsidiary of Van Eck Associates Corporation based in New York (‘Van Eck Global’). The ETFs are subject to investment risk, including possible delays in repayment and loss of capital invested. Past performance is not a reliable indicator of future performance. Neither MVIL nor any other member of the Van Eck Global group guarantees the repayment of capital, the performance, or any particular rate of return from the ETFs.

The Indices are the exclusive property of Market Vectors Index Solutions GmbH (‘MVIS’), which has contracted with Solactive AG (‘Solactive’) to maintain and calculate the Indices. The ETFs are not sponsored, endorsed, sold or promoted by MVIS and MVIS makes no representation regarding the advisability of investing in the ETFs. Solactive uses its best efforts to ensure that the Indices are calculated correctly. Irrespective of its obligations towards MVIS, Solactive has no obligation to point out errors in the Indices to third parties.

This information is believed to be accurate at the time of compilation but is subject to change and MVIL does not represent or warrant the quality, accuracy, reliability, timeliness or completeness of the information. To the extent permitted by law, MVIL does not accept any liability (whether arising in contract, tort, negligence or otherwise) for any error or omission in the information or for any loss or damage (whether direct, indirect, consequential or otherwise) suffered by any recipient of the information, acting in reliance on it.