It’s an understatement to say that gold prices have been bumpy this year. Mining stocks reflect that turbulence. Though essentially flat on the year, the largest gold miners ETF is off more than 10% over the past month.
The WisdomTree Efficient Gold Plus Gold Miners Strategy Fund (GDMN), which holds gold futures and a basket of mining stocks, hasn’t been immune from bullion miners’ recent weakness. However, risk-tolerant market participants have reasons to keep an eye on this ETF.
Gold miners’ management teams aren’t sitting idly by while their share prices fall. Rather, they’re capitalizing on the weakness and buying back stock at record levels.
“Gold miners are now doing more share buybacks than at any other point in history,” noted Tavi Costa, CEO of Azuria Capital. “We have never seen anything remotely close to the scale of what is happening today.”
Over the past few years, gold and silver miners, including GDMN components, have increased share repurchases. And in recent months, those efforts have materially accelerated, indicating industry executives see value in their stocks.
More Good News for GDMN Investors
The $202.5 million GDMN, which turns five years old in December, is unique among gold ETFs in that it provides exposure to both commodities futures contracts and mining stocks. That exposure makes the fund a potentially more potent gold mousetrap.
Regarding the buybacks, they’re large among large-cap miners. As just two examples, Barrick repurchased $1.5 billion worth of its stock last year, while rival Nemont Mining took advantage of a sizable portion of its $6 billion buyback plan.
Important to investors considering mining equities and ETFs such as GDMN, these companies aren’t feasting on debt to fund shareholder rewards. Miners are able to execute shareholder rewards because they’re remarkably profitable. As Costa noted, many market participants are sleeping on the industry’s impressive profit margins.
“Miners today are producing profit margins nearly double those of tech companies,” added Costa. “At current metal prices, this environment is absolute nirvana for well-run mining businesses.”
Yet somehow gold miners are often left out of the impressive profit margin conversation. That situation may not be permanent, potentially indicating GDMN’s recent dip could eventually evolve into a buying opportunity.
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