Wikinvest Wire

The Junior Gold Miners ETF one month later

Monday, December 14, 2009

Shortly after the Market Vectors Junior Gold Miners ETF (NYSEArca:GDXJ) began trading almost exactly one month ago, the detailed data that Van Eck Global provides on a daily basis at their website was collected so as to prepare the chart below in order to get a better idea of how the ETF was being received by investors.

So far, the results are fairly impressive, but their timing no doubt helped out considerably.

As it turns out, Van Eck launched this new ETF, a first-of-its-kind product that focuses on mid-cap and small-cap gold and silver mining companies rather than the major producers, just three weeks before the $1,225 all-time high for the gold price on December 2nd and that, no doubt, explains a lot of what you see in the graphic.
IMAGE Starting at zero on November 10th, net assets rose quickly to a high of over $600 million just after the gold price peaked, the decline in recent days being a result of a declining share price rather than redemptions. Since the share price for the ETF is down 13 percent since the early-December high and net assets have declined only 3 percent, this means that investors have continued to buy ETF shares during the current correction.

In the chart above, the gold price and the GDXJ share price are shown as the percent change since the ETF was launched a month ago and you can immediately see how much more volatile the shares are than the metal itself. So far, this appears to be more volatile than the much larger Market Vectors Gold Miners ETF (NYSEArca:GDX), which should come as no surprise.

Incidentally, the net assets for GDX now stand at a whopping $5.7 billion, by far, the world's largest gold mining stock fund currently available to retail investors, however, this is just one-seventh the value of the world's largest gold bullion fund - the SPDR Gold Shares ETF (NYSEArca:GLD) - that just passed the $40 billion mark.

I continue to think of the GDXJ junior gold miners ETF as a great way to get exposure to smaller gold and silver mining stocks without the hassle of owning individual shares and I expect it to be "discovered" by a host of new gold stock investors in the years ahead, much as its big brother GDX has been "discovered" in recent years. As the gold bull market continues, more and more investors will move further and further down the mining stock "food chain" in advance of a massive wave of takeovers and acquisitions that will come during the final stages of the bull market when both the gold price and mining stocks peak.

In my view, GDXJ should be considered an integral part of any investment portfolio that is focused on natural resources.

Full Disclosure: Long GDXJ, GDX, and GLD at time of writing.

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To learn more about investing in natural resources using commonly traded ETFs,
stocks, and mutual funds, see this description at Iacono Research.
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For subscription details, click here.


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3 comments:

bevo said...

As someone who holds a very small amount of GDX, it has been a fun, wild run. Thankfully, I do not need the money from that ETF so I can enjoy the movement.

Raphaƫl Kahan said...

In this post I'm looking at the usual and less usual metrics for assessing the current valuation of the dollar price of gold

http://raphaelkahan.blogspot.com/2009/12/gold-is-this-bubble-yet.html

Paul said...

great site on gold and silver!

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