Gold ETFs have become very popular as an investment option.
However, the recent slump in prices has affected the demand for
gold ETFs and also somewhat tarnished its image as a gold haven.
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To date, gold has dipped almost 35% from its all-time high in Sep
2011 when it touched $1,921 per ounce. This drop has technically
put the yellow metal into the quagmire of a bear market.
In 2013, it was not one event that affected the gold market. A
combination of factors - the Federal Reserve's taper or no taper
confusion, conflict in Syria and slowdown in Indian and Chinese
demand - affected gold prices. (Read:
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Alarming Outflow in ETFs in 2013
The first quarter witnessed a 176.9 tons net outflow from gold
ETFs due to falling prices, leading to an overall investment
demand decline of 49%. In the second quarter, there was a record
402.2 tons net outflow from gold ETFs. This led to overall
investment demand decline of 63%. (rRead:
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The bridge between investors at the retail level and the
investment level was never so apparent. Retail investors (in gold
bars and coins) view gold for preserving wealth and hedging
against inflation over the long term. Thus, in the second
quarter, demand from retail investors leaped to unprecedented
levels as they saw an opportunity to add to their holdings as
gold prices dipped.
On the other hand, the institutional investors have a different
perception with a short-term, speculative approach. Expectations
of the US government tapering quantitative easing by the end of
2013 led to ETF investors losing confidence in gold as a safe
haven. The price drop in the quarter prompted these opportunistic
investors to sell their ETF holdings and shift to other
investment options. Further price pressure could lead to
continued outflow in the near term. (Read:
3 High Quality Dividends to buy this Holiday
The recent decline in prices has dealt a severe blow to
investors' confidence for the yellow metal and it may take many
months to restore. Even though it has resulted in major losses in
the paper gold market, it has otherwise triggered a gold rush for
the actual physical metal in the form of bullion, jewelry, bars
and coins. Thus, gold prices will get support from retail demand
for gold, particularly in India and China. Gold traders are
eyeing an increase in physical demand from Asia, particularly
from India due to the upcoming festive demand.
Furthermore, the selection of Janet Yellen to succeed
Bernanke will bring back confidence in the market. Yellen has
been a strong supporter of easy monetary policy and it is
expected that she will not bring major changes to Fed's policies
in this turbulent times. This will improve investor sentiment and
might support gold prices. (See All Precious Metals ETFs
Demand for gold will continue to rise in the long term, thanks to
the rising middle class in India, China and other emerging
markets. The Euro-zone debt crisis will also be an important
driver for gold demand. Furthermore, demand for gold bullion and
coins are currently at unprecedented levels. It may, however,
take months for this new demand to feed into prices, but prices
will eventually stabilize.
Investors have fled the mining sector and two things need to
happen before investors regain interest in gold mining stocks:
gold price needs to rise and the industry needs to rebuild its
credibility by delivering on promises of greater shareholder
returns. The consumers who rushed to buy gold following the fall
in prices might have to wait patiently for their anticipated
returns to materialize. At current levels, one should invest in
gold as a long-term investment, which will grow in value and add
diversification to a portfolio. For quick returns, it is
advisable to focus on other assets.
ETFs to Tap the Sector
Below, we highlight the ETFs in this sector in greater detail for
those seeking to make a gold-mining ETF play at this time:
Market Vectors Gold Miners ETF (
GDX is one of the popular gold ETFs on the market today with
asset under management of $7.46 billion and a trading volume of
roughly 61,840,423 shares a day. The fund charges an expense
ratio of 52 basis points a year.
The ETF was formed on May 15, 2006, to track the NYSE Arca Gold
Miners Index. The Index provides exposure to publicly traded
companies worldwide that are involved primarily in gold mining,
representing a diversified blend of small, mid and
large-capitalization stocks. The fund holds 37 stocks in its
basket, with a concentrated approach in the top ten holdings with
62.86% of the asset base invested in them.
Among individual holdings, top stocks in the ETF include
Barrick Gold Corporation
Newmont Mining Corporation
(NEM) with asset allocation of 11.71%, 10.65% and 7.80%,
Market Vectors Junior Gold Miners ETF (
Another popular choice in the gold miners ETF market is GDXJ, a
fund tracking the Market Vectors Junior Gold Miners Index, which
provides exposure to a small- and medium-capitalization companies
that generate at least 50% of their revenues from gold and/or
silver mining. The product has $2.28 billion in assets with a
daily volume of 1,536,050 shares. It charges 55 basis points in
annual fees and has a dividend yield of 8.57%.
The fund has a total holding of 71 stocks with approximately 91%
weightage toward small cap companies and the rest in middle cap
companies. It is widely spread with none of the companies holding
more than 4.73% of assets. Argonaut Gold,
Torex Gold Resources Inc
China Gold International Resources Corp Ltd
(CGG.TO) occupy the top three positions in the fund with asset
allocation of 4.73%, 4.54% and 4.06%, respectively.
Global X Gold Explorers ETF (
The fund seeks to match the performance and yield of the
Solactive Global Gold Explorers Index, which tracks companies
actively involved in gold exploration.
The ETF has managed assets worth $29.3 million since its
inception in Nov 2010. With a daily volume of more than 65,105
shares per day, the fund charges 65 bps in annual fees with a
dividend yield of 12.09%.
It is spread across 20 small cap securities with the top ten
holding 60.4% of assets. Torex Gold Resources,
Volta Resources Inc.
Gold Canyon Resources Inc.
(GDCRF) command the top three positions in the basket
representing 6.62%, 6.62% and 6.56% of the net assets
iShares MSCI Global Gold Miners (
The fund seeks investment results that correspond generally to
the price and yield performance, before fees and expenses, of the
MSCI ACWI Select Gold Miners Investable Market Index. This index
measures the equity performance of comps in both developed &
emerging markets that derive the majority of their revenues from
gold mining. The index also includes companies that do not hedge
their exposure to gold prices.
The ETF has over $35.3 million in AUM and a daily volume of about
57,699 shares, while it is also a low-cost pick with expenses of
39 basis points a year. It has a dividend yield of 1.93%.
The fund debuted in Jan 2012 and currently has 38 companies in
its kitty. The top stocks include Goldcorp, Barrick Gold
Corporation, and Newmont with asset allocation of 15.81%, 13.95%
and 9.84%, respectively.
PowerShares Global Gold & Prec Metals (
PSAU was launched in Sep 2008 and has been designed to track the
NASDAQ OMX Global Gold & Precious Metals Index. It has a
trading volume of just 10,589 shares a day, but is a bit pricey
as it charges investors 75 basis points on an annual basis. The
fund represents a dividend yield of 0.50%.
This fund has a total holding of 66 stocks. Among individual
holdings, Barrick Gold, Newmont and Goldcorp occupy the top three
positions in the fund with asset share of 8.61%, 7.95% and 7.83%,
Global X Pure gold Miners ETF (
The ETF is linked to the Solactive Global Pure Gold Miners Index,
which tracks the performance of the largest and most liquid gold
mining companies globally.
Formed in Mar 2011, the ETF has assets worth $3.55 million. With
a daily volume of more than 141,111 shares per day, the fund
charges 59 bps in annual fees with a dividend yield of 0.23%.
It is spread across 23 companies with the top 10 companies
holding 55.36% of the total net assets.
Sibanye Gold Limited
(SBGL), Centamin Egypt Gold and Koza Altin Izletmeleri A.S. hold
the top three positions representing 7.13%, 6.57% and 5.64% of
the net assets, respectively.
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