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Without a doubt, this year’s historic rallies in gold markets have started to produce two-way volatility that has taken many investors by surprise and the VanEck Vectors Gold Miners ETF (NYSEARCA:GDX) has lost more than 14% of its value since August 5, 2020. In all of this recent selling pressure, the VanEck Vectors Gold Miners ETF has fallen through its 50-day moving average and forced a test of prior lows below $40. However, these declines may have opened up a strong buying opportunity for precious metals investors to gain exposure to a well-balanced collection of gold mining companies that have already shown significant highlights in recent earnings reports. For these reasons, we rate GDX a “buy” on dips that should be capable of producing gains well into the end of this volatile year.

Source: Author via Tradingview

The VanEck Vectors Gold Miners ETF has an expense ratio of 0.52% and $17.8 billion in assets under management (AUM). GDX also provides diverse regional exposure, so this could be attractive for investors that have goals to reduce elevated risks that might be associated with specific geographical locations:

Source: ETF.com

GDX’s top-10 total holdings make up 62.13% of the exchange-traded fund and two of its best large-cap mining companies include Barrick Gold (NYSE:GOLD) and Newmont Corp. (NYSE:NEM). Both firms can be counted as an example of miners with supportive trends in earnings growth that may prove to be capable of sending GDX higher (while retesting the highs from September 2012). Currently, NEM makes up 12.67% if the fund while Barrick Gold makes up 12.54% of the fund (giving these companies a combined total of 25.21% of the total weighting in the VanEck Vectors Gold Miners ETF):

Source: ETF.com

During the second quarter, Barrick Gold generated an EPS figure of $0.20 and this was $0.02 above Wall Street’s estimates for the reporting period. Barrick also generated $3 billion in revenues (which was another beat relative to consensus expectations for the period):

Source: Barrick Gold

Relative to the first-quarter period, Barrick managed to increase its free cash flow by almost 20% (to $522 million). Barrick’s businesses benefited from a rise in gold prices and this is a truth that could quite possibly continue for the next several quarters. Barrick also recorded a decrease of nearly 25% in its debt net of cash and the stock’s quarterly dividend was also raised (to $0.08 per share).

Source: Barrick Gold

Additionally, Barrick saw excellent copper production during the second quarter period based on excellent quarterly results from the Lumwana copper mine located in Zambia. Essentially, these recent Lumwana production results look better than they have in years and copper costs (per pound) have held near the lower end of Barrick’s guidance ranges.

Source: Author via Tradingview

Newmont Corp. has also reported earnings results that indicate strong performances for the second-quarter period. Newmont’s gold production for the period came in at 1.3 million attributable ounces and the firm reported all-in sustaining costs (AISC) of $1,097 per ounce. Newmont also saw free cash flow of $388 million and operating cash flows of $668 million, while lowering the firm’s net-debt level relative to adjusted EBITDA (which came in at 0.6x).

Source: Newmont Corporation

Despite these results, recent sessions have put pressure on NEM share prices and the stock is now trading within close proximity to important support levels near 62.80. Since March, Newmont has posted strong gains but we have seen periods of corrective retracement to the downside.

Most of this activity occurred from the middle of May to the beginning of June, but if we see bulls lose hold of the support zone near 62.80, we would not be surprised to see another period of corrective decline in NEM. Having said that, the broader strength of the firm’s fundamental picture remains robust and long-term bullish trends in the underlying price of gold should prevent these declines from becoming a true reversal to the downside.

Source: Author via Tradingview

For all of these reasons, we expect further declines in the VanEck Vectors Gold Miners ETF to be relatively limited within the overvalued context of the broader market. With the fundamental macroeconomic backdrop that likely support higher metals prices, well-positioned miners like Barrick Gold and Newmont Corp. may continue to post positive earnings surprises for the next several quarters.

Overall, this year’s historic rallies in precious metals markets started to show two-way volatility that might be scaring potential investors into a position of reluctance. It’s reasonable to see why recent declines have taken many precious metals investors by surprise but the VanEck Vectors Gold Miners ETF is now looking like a much stronger trade after the fund has lost over 14% of its value since the beginning of August 2020. Investors looking to “buy low” can use these declines as a new buying opportunity to build exposure to gold mining companies with stable growth trends in recent earnings reports.

Lately, it really seems as though gold miners haven’t gotten any respect while volatility has increased in equities benchmarks but we rate GDX a “buy” on dips that might be capable of producing significant gains well into the end of this tumultuous year in 2020.

Thank you for reading.

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Disclosure: I am/we are long NEM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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