Gold loses value. Gold mining stocks plunge.
Gold loses 1.6 percent in the spot and futures markets, hovering near lows set in April. But the GDX, the ETF for gold miners, loses 4 percent and now stands at lowest point since December 2008.
An excavator loads a dump truck at Kumtor open pit gold mine in the Tien Shan mountains in Kyrgyzstan in March. As gold loses value, the value of mining stocks is falling even more. The GDX, an index of gold mining stocks, is at a four-year low.
Shamil Zhumatov/Reuters/File
The gold miners exchange-traded fund GDX has plummeted to its lowest point since December 2008 as the precious metal has lost ground, putting it in a new light, Strategic Financial Group CIO Lincoln Ellis said Friday.
"The bloom is definitely off the rose in the gold market, and the gold miners are feeling it, too," he said, adding that the pain trade in gold "has been twice the pain" for miners.
The Market Vectors Gold Miners ETF, as the GDX is called, closed down 4 percent at $26.38.
"And things are starting to look cheap," he added.
The gold mining sector could start to see consolidation or supply restrictions, Ellis said.
Spot gold declined 1.6 percent, hovering at a four-week low below $1,364 an ounce, Reuters reported. U.S. gold futures for June delivery dipped 1.6 percent at $1,364.70.
"If the dollar continues to strengthen, gold will continue to come down, those margins'll compressed and the valuations will continue to look reasonable, or in some cases slightly cheap," Ellis said. "Hopefully, you get consolidation in the bottom part of that index. That would also be helpful to the top-tier players."
Ellis added that gold has fallen out of favor as a safety trade.
"Everybody who's wanted to be long gold has been long gold, and that trade is over," he said. "Those people are exiting that trade."
Now, he argued, the story was more about fundamentals in such emerging economies as India and China.
"Moving away from gold as the driver but looking more to the fundamentals of what's going on in the mining business, a broader commodity issue, may be a reason to take a second look at them," Ellis said.