ETF GDX’s Largest Component – Barrick Gold – Superior Gold Price Leverage

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December 15, 2009 12:23pm ETF BASIC NEWS NYSE:GDX

gold-bars“The GDX’s (Market Vectors Gold Mining ETF) largest component, Barrick Gold (ABX) announced on December 1 that the company eliminated all of the its forward gold price hedges


 – giving the largest gold producer in the world the additional title of the largest unhedged gold producer in the world. As investors increasingly search for leverage to the gold price, Barrick Gold enters 2010 in a position to benefit fully from the bull market in gold,” Gold Alert Reports.

“With the gold price making headlines regularly over the past month as it moved up to post a series of new record highs, investors have been seeking ways to increase their exposure to gold without having to physically take possession – which entails additional costs for delivery, storage, insurance, and in some cases even sales taxes. GoldAlert.com published an article last month titled “How to Buy Gold” which briefly described several ways investors can obtain exposure to the price of gold. One method discussed was investing in the common stock of gold mining companies, such as those that are included in the GDX. This method has advantages over other forms of gold price exposure due to the ample liquidity in many of the gold producer names and the relatively low transaction costs,” Gold Alert Reports.

“Two weeks ago, Barrick Gold (ABX) announced it had completed the unwinding of $3 billion in forward gold contract hedges, sealing the commitment it had announced to its shareholders earlier this year. By eliminating its gold hedge book, Barrick has made its common stock more sensitive to changes in the gold price and, consequently, increased its utility as an investment proxy for gold. Leading up to the company’s big announcement, the company’s shares lagged both the gold price and other gold mining stocks, as measured by the GDX, in 2009. Part of the reason for the lag in the shares of ABX is due to investors’ reluctance to invest in a gold company that has partially hedged its gold production. Without the encumbrance posed by the forward hedges, Barrick’s stock should not only more closely track the gold price, but also has a greater likelihood of appreciating at a multiple of the gains in gold given its operating leverage to the yellow metal,” Gold Alert Reports.

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The investment (GDX) seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the AMEX Gold Miners index. The fund generally normally invests at least 80% of its total assets in common stocks and American depositary receipts (ADRs) of companies involved in the gold mining industry. The fund is nondiversified.

TOP 10 HOLDINGS (GDX) ( 68.62% OF TOTAL ASSETS)  
 
Company Symbol % Assets
AGNICO EAGLE MINES (AEM) 5.05
ANGLOGOLD ASHANTI LT (AU) 5.66
BARRICK GOLD CP (ABX) 14.08
Buenaventura Mining Company Inc. ADR N/A 4.97
GOLD FIELDS LTD ADS (GFI) 4.45
GOLDCORP INC (GG) 11.41
KINROSS GOLD CP (KGC) 5.79
NEWMONT MIN CP (HLDG (NEM) 8.28
Randgold Resources Limited (GOLD) 4.44
YAMANA GOLD INC (AUY) 4.49

Chart for Market Vectors Gold Miners ETF (GDX)

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