Gold Mining ETF Products

Before the advent of all the current Gold ETF products the way to increase the leverage in gold was to either purchase gold futures or shares of the Gold Miners. When gold prices would rise typically profit expansion among mining companies was higher on a percentage basis than the percentage rise in gold. If wanted even more leverage to earnings you could purchase the junior gold miners since their profit swings were even more dramatic. The same was true on the downside, if gold prices fell Gold Mining Companies fell more and the juniors even more. This volatility is also known as Beta.

Today investors have many more choices to leverage their gold purchases including the Leveraged Gold ETFs. However, if you still want to go after the Gold Mining companies there are now two excellent ETF choices.

GDX - Market Vectors Gold Miners ETF features the large cap gold miners as illustrated by the Top 3 holdings in the fund: Barrick Gold (16.19%), Goldcorp (12.07%), Newmont Mining (10.40%) and the top 10 holdings make up over 70% of the fund. As of 9/14/2010 roughly 94% of the funds assets were invested in Gold stocks.

The annual expense ratio is .54% (54 basis points) and the average daily trading volume is 7,768,300 so the only etf on this page that is more liquid is GLD.

Looking at the performance of GDX since inception in comparison to GLD you can see you would've been much better off in GLD during the credit crisis. During that time Gold Stocks dramatically underperformed the metal and haven't regained the lost ground at this time. Other than the underperformance during the credit crisis the two performance of the two are highly correlated.

GDX VS GLD Since Inception Of GDX

 
Chart begins on GDX first trading day.

If you look at the performance since 12/1/2008 as we have with some of the other leveraged products you can see that GDX has actually been outperforming gold during this post crash period.

Chart shows performance of GDX vs GLD since 12/1/2008

GDXJ - Market Vectors Junior Gold Miners ETF is designed to give investors exposure to a basket of junior gold mining companies. If you have ever purchased junior mining companies you know how incredibly volatile they can be and the need to purchase a basket of them. That's why this etf was an immediate hit with gold investors.

GDXJ has an annual expense ratio of .59% (59 basis points) which suprisingly is just slightly above the .54 of their large cap brother. The average daily trading volume is currently 1,212,390 so it's a very liquid way to play this sector of the gold market.

As you can see by the following chart GDXJ will tend to underperform when gold prices are falling and outperform when gold prices are rising. This is due to the high beta nature of the junior gold mining stocks. At the moment gold is at an all time high so GDXJ has been dramatically outperforming the past few weeks.

GDXJ Historical Performance VS GLD

Chart begins on the GDXJ first day of trading.

The following chart shows the performance of GDXJ since inception compared to GDX. I was suprised to find that the junior miners have consistently outperformed their large cap counterparts ever since the inception of GDXJ trading. You can see that GDXJ falls more sharply during down periods and basically gives up it's entire advantage but it hasn't actually traded below GDX. During downturns it is normal for the junior miners to fall much harder than the large cap companies.

GDXJ Performance Since Inception VS GDX

Chart begins on the GDXJ first day of trading.

GLD | IAU | SGOL | UGL | DGP | DGZ | GLL | DZZ | GDX | GDXJ