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Feb 17, 2017

S3 BLACKLIGHT: Gold Miner ETF Short Interest Decreasing & Long Holdings Increasing

With the Federal Reserve not giving a definite indication that they will raise the Fed Funds rate in March -Fed Funds futures imply only a 32% chance at the moment - and ongoing economic and regulatory uncertainty under the new Trump administration, the traditional “safe haven” of gold has seen an increase of over 7% in price this year. Gold, at $1,238/oz. today, is trading in a $1,235 - $1,240 resistance level and any move significantly above or below may signify a short term trend in that direction.

The VanEck Vectors Gold Miners ETF (GDX US) and VanEck Vectors Junior Gold Miners ETF (GDXJ US) have seen sizable buy to covers over the last week (both are in the top ten most bought to cover ETF’s), with the GDX’ short interest down $157 million, or 18%, and the GDXJ’s short interest down $199 million, or 27%. GDX short interest is $783 million, down 14% on the year, and GDXJ short interest is $543 million, down 7% on the year.

With both the GDX and GDXJ outperforming the major market indices this year - the GDX is up 19.31% and the GDXJ is up 32.39% - short sellers have not seen positive returns on their holdings. GDX short sellers are down $196 million of net of financing mark to market P\L, or 18.82%, and GDXJ short sellers have lost $225 million, or 31.14%, on almost a third smaller position.

While GDX and GDXJ short sellers have been reducing their short exposure, long holders have been increasing their exposure. The GDX ETF, with a market cap of $11.95 billion, had $227 million of new inflows this week, while the GDXJ, with a market cap of $5.61 billion, had inflows of $294 million.

With shorts covering their gold mining ETFs and longs buying more of them, it seems like equity traders are looking for an upwards breakout in the price of gold and a continuing rally in the underlying gold miner stocks. Having already lost a combined $421 million on their short gold mining ETF positions this year, short sellers might be quick to buy to cover more of their holdings if gold and gold mining stocks continue to rally.

For more information on the above analysis, please contact:
Ihor Dusaniwsky, Head of Research, S3 Partners, LLC     Ihor.Dusaniwsky@S3Partners.net
The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC ('S3 Partners') to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks and merits, as well as the legal, tax, accounting and investment consequences, of such decision.

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