Gold ETFs and Stocks Surge, Benefit Most from Fed Minutes

Although the Fed minutes held last month did not deliver anything new, the U.S. stock market strongly recovered from the sell-off seen early this week following the minutes. The Fed continued to maintain its accommodative stance by promising to keep interest rates low for a considerable period of time after the end of the quantitative easing (:QE) program (read: Interest Rate Speculation: A Boon for TAPR ETF).

This is because the Fed officials are concerned over the global economic slowdown and a strong U.S. dollar that will weigh on overall domestic growth and inflation, one of the keys to stick to low interest rates. The International Monetary Fund (:IMF) cut its global economic growth for the third time this year to 3.3%, citing persistent weakness in the Euro zone, Japan as well as key emerging and developing markets like China, Brazil, Russia and the Middle East. The dismal overseas growth will hamper exports in the U.S. and knock down economic recovery.

Notably, the Dow Jones Industrial Average climbed about 1.6% in yesterday’s trading, representing the biggest gain since December while the S&P 500 and the Nasdaq had their best day in nearly a year, rising 1.8% and 1.9%, respectively. Trading volume was solid across all the U.S. bourses on the day with about 8.4 billion shares, according to BATS exchange data. This is well above the average volume of 7.19 billion month to date.

With the end of QE and lower interest rates, excess money will flow into the market pushing the U.S. dollar down in the coming months. Since money will become extremely cheap, investors started flocking to gold as a store of value given the global concerns and geopolitical risks. As a result, gold rose about 1% on Wednesday while dollar dropped sharply against a basket of major currencies.

While there are winners in many corners of the space, gold miners have performed exceptionally well on the Fed minutes. As gold miners trade as a leveraged play on underlying precious metals, they tend to experience more gains than the gold bullion. Below, we have highlighted three best performing ETFs and stocks of the day that will likely to continue its strong performance, particularly if the current trends persist (see: all the Materials ETFs here).

Top ETF Performers

Market Vectors Junior Gold Miners ETF (GDXJ) – Up 9.61%

This ETF targets the small cap segment of the gold mining industry by tracking the Market Vectors Global Junior Gold Miners Index. Canadian firms take the lion’s share at 66.8%, though Australia (18.9%) and the U.S. (9.5%) round out the top three. The fund holds 63 stocks in its basket and is pretty well spread out across each component with none holding more than 4.4% of assets.

The product has so far amassed $2.2 billion in its asset base while charging 57 bps in annual fees. It saw trading volume of more than 2.8 times than the normal average daily volume.

Sprott Gold Miners ETF (SGDM) – Up 8.81%

This fund follows the Sprott Zacks Gold Miners Index, holding 26 stocks in its basket. It is highly concentrated on the top three firms – Franco-Nevada (FNV), Randgold Resources (GOLD) and Goldcorp (GG) – that collectively make up for 46.9% share. The product is widely diversified across various market caps with 48% going to mid caps, 34% to small caps and the rest to large caps.

SGDM is a new product in the gold space and has accumulated $41 million in just less than a three month. The ETF charges 57 bps in annual fees from investors and trades in elevated volumes (read: New Smart Beta Gold Mining ETF Hits the Market).

Top Stock Performers

B2Gold Corp. (BTG) – Up 14.43%

This company is engaged in the exploration and development of gold in Nicaragua, Namibia, Burkina Faso and Colombia. It expects 2014 to be another record year for gold production. Though B2Gold has seen negative earnings estimate revisions for the current and the next year over the past seven days, the shares have skyrocketed on rising gold prices.

In fact, over the past seven days, the consensus estimate for the current year has fallen from 4 cents to 3 cents per share while the next year estimates dropped from 13 cents to 9 cents per share. Further, B2Gold has a Zacks Rank # 5 (Strong Sell), suggesting that some pain is in store for this company in the months ahead.

Alamos Gold Inc. (AGI) – Up 13.60%

This company is engaged in the acquisition, exploration, development and extraction of gold. It owns and operates the Mulatos mine in Mexico, and owns the Agi Dagi, Kirazli, and Çamyurt gold development projects in Turkey (read: Gold Mining ETF Investing 101).

The stock has seen negative earnings estimate revisions for both the current year and the next over the past 30 months. The consensus estimate stood at 10 cents for the current year and 22 cents for the next, down from 11 cents and 23 cents, respectively. However, Alamos has a Zacks Rank #2 (Buy).

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