It's been an interesting year for the VanEck Gold Miners ETF (ASX: GDX) so far in 2023. Right now, this gold mining exchange-traded fund (ETF) is trading at $44.29 a unit, flat for the day so far. That still puts this ETF up a decent, if not particularly inspiring, 1.5% over the year to date.
However, GDX units climbed as high as $54.17 each earlier this year back in April, and remain down more than 17% from those highs today.
So it's probably a good time to discuss whether the VanEck Gold Miners ETF is a good buy this September.
The VanEck Gold Miners ETF is a fund that pretty much does what it says on the tin. It invests in a basket (currently 51) of gold mining companies that hail from all around the world. Around half of its current holdings are listed in Canada. But the United States, as well as Australia, South Africa, China and the United Kingdom also contribute some holdings.
The top shares in the fund's portfolio include Newmont Corporation, Barrick Gold Corp, Franco-Nevada Corp, Wheaton Precious Metals Corp, and our own Newcrest Mining Ltd (ASX: NCM). Other ASX-listed gold mining shares present in this ETF include Northern Star Resources Ltd (ASX: NST), Evolution Mining Ltd (ASX: EVN) and Perseus Mining Ltd (ASX: PRU).
As such, this ASX ETF can be thought of as a vehicle to gain exposure to a broad swathe of the global gold mining sector.
But let's talk about whether it could be a good buying opportunity for this ETF in September 2023.
What could make the VanEck Gold Miners ETF a buy this month?
The fundamental driver of this ETF's returns is going to be the gold price itself. Gold miners as a whole all ride or die on the price of gold itself. If the gold price rises, then these companies will benefit exponentially as their costs are relatively fixed, meaning any increase flows straight through to the bottom line.
If it costs a gold miner US$1,500 to extract one ounce of gold, and the gold price is at US$2,000, then the company has a profit margin of US$500 per ounce. But if the gold price increases 10% to US$2,200, then our gold miner would enjoy a 40% increase in its profits since its margins just went from US$500 to US$750 per ounce.
Of course, this can work in reverse as well. If gold prices crater, then the companies that mine it will quickly see their profit margins evaporate.
Right now, gold is asking approximately US$1,928 per ounce. However, this price is a ways away from the all-time highs of around US$2,050 an ounce that we saw earlier this year (coinciding with GDX's last ASX 52-week high).
Where is the gold price (and GDX units) heading to next?
This could well be a good buying opportunity for this ETF. As we've covered here at the Fool, many experts are seeing gold prices as undervalued at the moment. Last month, my Fool colleague Bernd discussed Joe Cavatoni's thoughts. Cavatoni is head of Americas at the World Gold Council. He predicted that gold demand could rise if the US Federal Reserve hits the peak of its current interest rate hiking cycle:
When the Fed has managed to cool off the economy, once that starts to develop, that monetary policy will loosen up, the ability for gold to start to see itself run. Right now what we're seeing is range-bound pricing on the gold market. So you see us holding firm … but not breaking out.
Back in July, we also looked at investment bank and broker Goldman Sachs' view on the precious metal.
Goldman has forecast an average price for gold of US$2,133 in 2024. Here's why:
On 'wealth', the team see the historical globalization and industrialization (especially in China) as having led to a significant boom in income and savings in emerging markets during the 2000s, which created new consumers, boosted household wealth and drove consumption demand for gold rapidly higher.
Since 2000, China and India's combined share in the global jewelry market has increased from 25% to over 60%, though may still remain below peak per capita demand.
So perhaps it is a good time to buy the VanEck Gold Miners ETF today, if these ASX experts are to be believed anyway. But you can rest assured that wherever the gold price goes, GDX units on the ASX will follow.
