Market Vectors Junior Gold Miners ETF (NYSEARCA:GDXJ) moving down the vector
Thursday saw exchange traded funds and gold miner stocks heading steeply south in the wake of a bullion prices drop. On Wednesday, Ben Bernanke, the Federal Reserve Chairman indicated that the Fed may ease-off its bond purchases. As news of this spread, miners and gold ETF’s took a beating. The Market Vectors Junior Gold Miners ETF (NYSEARCA:GDXJ) slid-down by 9.78% on Thursday. There has been a 47.8% y-t-d decline in GDXJ. Come September and the Fed will scale-down on quantitative easing to $65B per month. The S&P’s/TSX Global Gold Sector Index touched its lowest intra-day price level since 2008 October 2008.
This has the gold producers devastated and there is no way that anyone will be able to obtain financing and get a new mine on its feet. On Thursday, gold futures had dropped 6.7% and were trading at close to $1,282 per ounce. This is absolutely the first time in the past three years that the yellow metal has traded under $1,300.
Why the gold dip?
With United States Non-Farm Payrolls closing at a heavy +175k, gold as well as silver prices are set to take another beating. The total absence of any added quantitative-easing negates the need to purchase gold as a hedge against any additional easing of the US monetary policy. In the coming months, gold and silver prices are not getting their feet off the ground and both metals are in most probability headed towards new multi-year lows very soon.
A take-retake view
It is not a hidden fact that the stock market is literally addicted to quantitative easing. What probably is very hush-hush is that quantitative easing is not much more than a means of financing the deficit in budget. The reason why mention of tapering quantitative easing comes into the picture is because the budget-deficit is actually going to decrease further. There is a possibility that it will bounce right back. As there may be changes on entitlement programs, the budget deficit will blast higher once again in two years. Whats happening is that flexibility is being created to match the amount of quantitative easing with the actual size of the budget deficit.