2 Red-Hot Gold ETFs That Could Cool Off

SPDR Gold Trust (GLD) and VanEck Vectors Gold Miners ETF (GDX) have historically been two of the worst ETFs to own in March

Feb 28, 2017 at 8:17 AM
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Gold stocks have been on a tear in 2017, as illustrated by the SPDR Gold Trust (GLD) and VanEck Vectors Gold Miners ETF (GDX). However, this duo of gold-based exchange-traded funds (ETFs) recently sent up a relatively rare signal, according to Schaeffer's Quantitative Analyst Chris Prybal, and if recent history is any indicator, the red-hot gold ETFs could be ready for a March cool-down.

GLD and GDX -- which exhibits about triple the volatility of GLD -- were in relative unison until just recently, both running into their respective 160-day moving averages. Over the past five days, GLD has racked up a gain of 1.2%, while GDX has dropped nearly 8%. Using only one signal every month, this is just the 64th time since inception that GLD and GDX have endured a 5-plus percentage-point difference, noted Prybal.

GLD and GDX charts


In the past, these signals have preceded weaker-than-usual price action for GLD. Specifically, GLD has averaged a one-week loss of 0.3% after these signals, compared to an average anytime weekly gain of 0.2%. Looking as far as six months out (126 days), the GLD tends to lag its anytime returns following a notable divergence with GDX.

GLD returns after signal


GDX has also averaged a one-week loss after a signal, down 0.6%, and higher just 43% of the time. However, GDX drastically outperforms after that. The ETF averages a one-month (21-day) gain of 2.4%, compared to an average monthly return of 0.4%. And six months out, GDX has been higher by an average of 4%, compared to its anytime six-month return of 1.4%.

GDX after signal


However, "March is historically not the best month for GLD or GDX," Prybal notes. Since inception, GLD has lost 1.1% in March, on average. Further, it's been one of the worst ETFs to hold in March during the past 10 years, ending higher just 20% of the time, with an average loss of 1.1%. GDX, meanwhile, has also been the worst ETFs to own in March, going back 10 years, and since inception has averaged a loss of 2.8% in the month. "The cherry on top is President Donald Trump's speech to Congress tonight," Prybal notes, "as he has shown a propensity to assuage the equities market" -- which often dulls gold's "safe haven" allure. 

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