VanEck Vectors Gold Miners ETF for protection

Investment idea by DTI Algorithmic

DTI Algorithmic
May 16, 2019 · 3 min read
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Exchange: NYSE
Sector: Finance
Industry: Exchange Traded Fund

Entry strategy

Price: market price
Stop-loss: $17
Take profit: $27.5, then $36.5
Investment horizon: until the end of the middle quarter of 2020

Tool Details

This tool reproduces the dynamics of the assets included in the NYSE Arca Gold Miners Index (weighted average index of capitalizations of the issuers included in it). 80% of the fund’s assets are invested in ordinary shares and depositary receipts of companies that operate in the precious metals industry.

Top 10 issuers (61%) that comprise NYSE Arca Gold Miners Index and their shares indicators:

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Top 10 issuers (61%) that comprise NYSE Arca Gold Miners Index and their shares indicators. Source: Yahoo Finance

Key ETF indicators:

Key indicators of VanEck Vectors Gold Miners ETF ($ GDX). Source: Yahoo Finance

Basis for the long position — technical analysis

Since the beginning of 2019, markets have been growing without any significant rollbacks expecting that the US and China to make a deal. However, now the crisis is approaching the world economy and investing only in stocks is very risky for investors:

  • the macroeconomic statistics received in the first half of 2019 shows signs of clear slowdown in the global economy in some regions including China;
  • the magnitude of global debt in absolute and relative terms reached record level;
  • the expectations of analysts and companies in terms of growth in net profit and corporate earnings for the second half of 2019 and the beginning of 2020 are falling;
  • the trade war between the United States and China has escalated again;
  • information about the first bankruptcies of Chinese corporations has appeared — the Chinese authorities are trying to save them with quantitative easing tools, but the problem with corporate debt remains serious.

This idea aims to encourage investors to protect themselves against risks. One of the tools for this case is gold, related assets and derivatives. We propose to increase the weight of precious metals in the protective portfolio in which there can also be bonds, shares of protective sectors and cash.

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Technical analysis of VanEck Vectors Gold Miners ETF ($GDX). Weekly data. Source: TradingView

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