Basic Guide To Investing In Gold Mining ETFs

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September 5, 2013 12:59pm NYSE:DUST NYSE:GDX

gold miner pickGold miners have been pretty terrible investments for much of 2013. These miners often trade as leveraged plays on their underlying metals, and with gold floundering for much of the year, losses began to pile up for the space.

In fact, during the first seven months of the year, most gold miners lost more than 40%, further underscoring the extreme bear market conditions in the space. However, recent trading in the segment has been decidedly more bullish, leading many to believe that the worst might be over for the segment (see 3 Mining ETFs Finally on the Upswing).

Gold miners have actually risen more than 15% on average in the past 10 day time frame, with a few rising more than 20% in the period. This suggests to many that gold miners—thanks to some firm trading in gold and bottom fishing—may finally be back on track and some intrepid investors may want to consider taking a closer look at the gold mining ETF space for diversified exposure.

There are a lot of options in the segment though, so some investors might be wondering which is the best choice for them. Below, we have highlighted some of the key differences between the many funds in this space for those looking to play the recent surge in gold miners in ETF form:

Large Cap-Focused Gold Mining ETFs:

  • (GDX)- This is easily the most popular and liquid product in the space, focusing on large cap gold miners. The fund has added about 16.6% over the past 10 days, though it is down 25.4% over the past six months.
  • (PSAU)- PowerShares’ entrant in the space has more holdings than either large cap on the list, though volume is a bit light for this spread out product. Gains of 15.7% have been seen over the past two weeks, while a -24.6% performance has been seen over the last six months.
  • (RING)- For investors seeking a cheap choice in the segment, RING could be an interesting choice thanks to its expense ratio of just 39 basis points a year. This fund has added the least on the list of unleveraged funds, moving higher by 14.5% in the past ten days, though losses of 28.7% have been seen in the last six months.

Small Cap-Focused Gold Mining ETFs:

  • (GDXJ)- The second most popular fund in the space, this ETF is the small cap complement to GDX, holding roughly 70 stocks in the small and micro cap gold mining world. The product has moved higher by 25.3% in the past 10 days, but for the past six months it has lost roughly 28.9%.
  • (GLDX)- For a speculative play, this ETF could be worth a closer look thanks to its focus on companies that are looking for gold and are not necessarily mining for it. The product has moved higher by 19% in the past two weeks, while it has lost 26.5% in the past six months.
  • (GGGG)- This ETF looks to only focus on companies that derive at least 90% of their revenues from gold, making it a concentrated play on the space. This has paid off recently, producing a 24.1% gain in the past ten days, though the six month return still stands at -23.3%.

Leveraged Gold Mining ETFs:

Currently, there are two choices in the space for investors seeking leveraged plays on gold miners. Just keep in mind that these utilize 3x leverage that reset on a daily basis, so they should really only be used by short term traders (see The Comprehensive Guide to Gold ETF Investing).

For a 3x option investors have (NUGT) while the -3x option is (DUST). These two both follow versions of the Amex Gold Miners Index—with their respective leverage levels—and thus have comparable holdings to GDX.

In terms of performance, NUGT has gained 49.3% in the past 10 days (but is still down 72.9% over the last six months) while DUST has declined by 45.3% in the past two weeks (though it is up roughly 4.9% over the past half year).

More Information on Gold Mining ETFs

For more on the recent trends in the gold mining ETF world, as well as some of the differences between the funds, watch our recent video on the subject below:

This article is brought to you courtesy of Eric Dutram.

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