By The ETF Professor
Gold's foray deep into bear market territory Monday is claiming a predictable batch of victims, namely popular ETFs such as the SPDR Gold Shares (NYSEARCA:GLD) and the iShares Gold Trust (NYSEARCA:IAU).
Of course, the miners and the relevant ETFs are getting in on the act as well.
Unfortunately, gold's list of victims does not end there. The yellow metal's slide is also plaguing several country-specific ETFs tracking nations that are major gold producers. China and the U.S. are the largest and third-largest gold producers in the world, respectively, but there are reasons beyond gold's fall that explain why the iShares FTSE China 25 Index Fund (NYSEARCA:FXI) and the SPDR S&P 500 (NYSEARCA:SPY) are lower.
When taking that into account and taking Ghana and Uzbekistan, both top-10 gold producing countries, out of the equation, the ETFs that track the largest gold-producing nations are still getting beaten up on Monday. Even the newly minted Global X Central Asia & Mongolia Index ETF (NYSEARCA:AZIA), which offers exposure to several central Asian countries though not Uzbekistan, is down more than 4.7 percent.
Global investors looking to dodge the calamity caused by gold should consider taking a pass on the following ETFs.
iShares MSCI Australia Index Fund (NYSEARCA:EWA)
Just last week, analysts published both bearish and bullish views on Australian equities. Today, EWA, the largest ETF tracking the world's second-largest gold producer, is down 2.7 percent. That is not surprising given the EWA's 19.1 percent allocation to materials stocks, including BHP Billiton (NYSE:BHP), the world's largest mining company.
There is one way gold's fall could work in EWA's favor. One of the most cited reasons for being bearish on Australian stocks is the strong Australian dollar. The aussie is a commodity currency and the commodity it is believed to have an intimate correlation to is gold. The correlation is not high, as over the past five years GLD has offered better than quadruple the returns of the CurrencyShares Australian Dollar Trust (NYSEARCA:FXA).
Still, any relief Australian exporters can get in terms of a weaker aussie would be viewed as a positive sign. The danger to EWA is that with gold rapidly losing its safe-haven status, the Australian dollar could rise even as gold falls as investors look for new safe-havens. The aussie fits the bill. After all, Australia has an AAA credit rating and a three percent interest rate, which is high by developed world standards.
iShares MSCI All Peru Capped Index Fund (NYSEARCA:EPU)
Although Peru is expected to be South America's fastest-growing economy this year, it was noted two months ago that EPU's materials sector exposure could be problematic. That has proven to be the case as the ETF has been hampered by its 44.1 percent weight to the materials sector.
EPU faces a triple whammy in that it is not only a major gold producer, but it is the world's largest silver producer. The iShares Silver Trust (NYSEARCA:SLV) is off 14 percent in just the past five days. The triple whammy is completed by Peru's status as a major copper producer. The red metal has proven far from immune to the slide in precious metals and China's disappointing first-quarter GDP report.
Southern Copper (NYSE:SCCO) and Buenaventura Mines (NYSE:BVN) are EPU's second- and third-largest holdings, combing for nearly 21.3 percent of the ETF's weight. EPU is down more than 13 percent its 2013 high and a move below $39 would have the ETF joining gold in bear market territory.
iShares MSCI South Africa Index Fund (NYSEARCA:EZA)
An easy call to make here as South Africa is the fifth-largest gold producer in the world, just ahead of Peru. EZA is off 3.6 percent and gold's fall is only exacerbating a bad situation for this ETF.
EZA has already been plagued with an alarmingly high unemployment rate (over 20 percent) and the laggard performances of the largest emerging markets this year. Gold's slide has the ETF threatening support at $60 and if that area gives out, EZA could return back to the October 2011 low around $52.
EZA has other problems, too. South Africa is the largest platinum producer and the second-largest palladium producer behind Russia. The ETFS Physical Platinum Shares (NYSEARCA:PPLT) and the ETFS Physical Palladium Shares (NYSEARCA:PALL) are off 4.7 percent and 5.5 percent, respectively on Monday.
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