Gold mining companies have tracked the price of the yellow metal lower over the past two weeks after risk-on assets received a double-dose boost of positive vaccine news from Pfizer Inc. (PFE) and Moderna, Inc. (MRNA). However, as COVID-19 infections continue to rise and the complexities of administering a shot to large portions of the population begin to surface, investors may once again turn to the safety of gold to hedge against a winter of uncertainty.

Key Takeaways

Furthermore, ongoing stimulus measures to kickstart the struggling COVID-stricken economy bode well for the precious metal. "We can now see a path forward, but there are still a lot of questions unanswered," Franklin Templeton gold and precious metals fund manager Steve Land told Kitco. "There's still … a lot of work to be done and that probably is going to require a lot of stimulus. As we look forward, there's certainly potential for inflation. There's potential for currency devaluation. That will be positive for gold," he added.

Active traders can gain cost-effective exposure to gold mining companies through the two industry-themed ETFs outlined below. Let's take a closer look at the metrics of each fund and discuss possible trading tactics. 

VanEck Vectors Gold Miners ETF (GDX)

With assets under management (AUM) of $16.29 billion and a 0.53% expense ratio, the VanEck Vectors Gold Miners ETF shines as the leader in the segment. The 14-year-old fund holds a basket of around 50 global gold mining companies, with prominent industry names Newmont Corporation (NEM) and Barrick Gold Corporation (GOLD) commanding almost 25% of assets. Trading wise, the ETF turns over more than 21 million shares per day on narrow penny spreads to minimize transaction costs. Despite GDX trading 22.34% higher year to date (YTD), the fund has slipped 10% over the past month as of Nov. 19, 2020. Investors receive a modest 0.51% dividend yield.

GDX shares have oscillated within a descending channel over the past four months to establish clear support and resistance areas on the chart. Active traders should look for buying opportunities at $35.30, where the price may catch bids near the pattern's lower trendline and 200-day simple moving average (SMA). Those who take a long position should consider setting a take-profit order near the channel's top trendline at $40.70 but cut losses if the fund fails to hold above the $34 level.

Chart depicting the share price of the VanEck Vectors Gold Miners ETF (GDX)
TradingView.com

The expense ratio (ER), also sometimes known as the management expense ratio (MER), measures how much of a fund's assets are used for administrative and other operating expenses.

VanEck Vectors Junior Gold Miners ETF (GDXJ)

The VanEck Vectors Junior Gold Miners ETF seeks to provide a similar return to the MVISA Global Junior Gold Miners Index – a market cap-weighted benchmark made up of small-cap global gold and silver mining companies. Top allocations in the fund's portfolio of 83 holdings include Kinross Gold Corporation (KGC) at 6.82%, Gold Fields Limited (GFI) at 6.12%, and Northern Star Resources Limited (NESRF) at 5.50%. Trading costs are comparable with GDX, with over 8 million shares exchanging hands most days on a 0.02% average spread. GDX holds net assets of $5.89 billion, yields 0.31%, and has fallen 10.47% in the past month. YTD, the ETF has gained 22.17% as of Nov. 19, 2020.

Since early August, the ETF's share price has traded within an orderly 10-point descending channel following gold lower. Those who favor range-bound strategies should look for entry points around $49.50, where the ETF finds a confluence of support from the pattern's lower trendline and the 200-day SMA. In terms of trade management, target a move back to the top of the channel at $58.30 while protecting capital with a stop-loss order placed somewhere below the 200-day SMA.

Chart depicting the share price of the VanEck Vectors Junior Gold Miners ETF (GDXJ)
TradingView.com

Confluence is the combination of multiple strategies and ideas into one complete strategy. Confluence occurs when two or more separate ideas or strategies are used together to form a comprehensive investment strategy that is in line with an investor's risk profile and goals.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.