Gold Miners Hit by ETF Moves

September 17, 2013 at 07:59


The conspicuous falls suffered by a clutch of precious metals miners yesterday served to highlight the influence exchange-traded funds wield on the London stock market.

Silver and gold producer Fresnillo recorded the biggest drop in the FTSE 100 and slid 153p, or 12.8pc, to £10.45. In the FTSE 250,Hochschild Mining lost 38.6 to 237.4p, a 14pc fall; African Barrick Gold declined 20.3 to 143.9p and Polymetal International cheapened 50 to 659½p.

One factor initially thought to have weighed on both Fresnillo and Hochschild was investor concern about proposals for a higher than expected tax on Mexican mining companies. All of Fresnillo’s mines are located in the country, while Hochschild also has operations in Mexico.

However, analysts and dealers pointed out that the 7.5pc mining levy was disclosed a week ago. Furthermore, neither Polymetal nor African Barrick have operations in Mexico and so would not be affected.

Market-watchers said the factor linking all four companies today was their failure to be included in the $6.4bn (£4bn) ETF called the Market Vectors Gold Miners ETF. Known as GDX, it is the biggest gold miner-focused ETF in the market and tracks the NYSE Arca index.

If the miners had entered the underlying index later in the month, as had been expected by the market, their inclusion would have spurred significant buying pressure on the shares from GDX.

However, it emerged that, because the four precious metals producers had large controlling shareholders, they would not be included in the index after all and as a result would not be bought by GDX.

Hoping to profit from the uplift the miners experienced when the ETF began to buy, analysts said that hedge funds and other short-term investors would have snapped up the shares in recent days. Today, the surprise omission of the miners from the index prompted them to sell, pushing the share prices markedly lower.