It's no secret that
ETFs tracking gold miners
have significantly lagged their physically-backed counterparts.
That much is proven by this statistic: In the past year, the SPDR
Gold Shares (NYSE:
), the largest physically-backed gold ETF in the world, is up
9.2% while the Market Vectors Gold ETF (NYSE:
), the largest gold miners ETF, is off 23.4%.
The miners vs. gold price conundrum has confounded both
analysts and investors, making any bullish call on the
disappointing miners bold to say the least. On the other hand,
some might argue that the miners offer superior risk/reward
compared to gold-backed ETFs going forward.
That's the position of Street One Financial President Scott
Freeze who discussed the potential virtues of the gold miners
with Benzinga today.
"If you look at miners on a historical basis, they go through
periods of lagging gold futures and then a period of substantial
outperformance," Freeze said. "We've seen capitulation with the
miners, we've already been there. Since the miners have already
been lagging, they offer more upside than downside now compared
to a fund like GLD."
Regarding gold mining ETFs, Freeze has a preference for the
unheralded Global X Pure Gold Miners ETF (NYSE:
). The Global X Pure Gold Miners ETF debuted 13 months ago, but
has just $4.6 million in assets under management compared to over
$8 billion for GDX.
Freeze noted that GGGG's 26 equity holdings are all pure play
gold miners, but GDX holds several silver miners including Silver
) and Pan American Silver (Nasdaq:
). GGGG's largest holding is El Dorado Gold (NYSE:
Noting that an inflationary environment could hit investors
sometime over the next 15 months because of previous rounds of
quantitative easing by the Federal Reserve, Free said gold is
poised to outperform the other precious metals.
"Gold itself will outperform other metals and GGGG should
outperform GDX though GDX should do better than GLD," according
Gold prices have slid recently, sending GLD down 1.18% in the
past month while the rival iShares Gold Trust (NYSE:
) is off 1.24% over the same time, but that may not have the
impact on the bottom lines of miners because many effectively
hedged their production by selling gold futures contracts to lock
in higher prices late last year and early this year.
"The gold miners are already hedged by having sold gold
futures contracts. They're still locked in at a higher future
price," Freeze said. "We've heard about some foreign companies
that have done that and it bodes well for upside in the
Regarding silver, Freeze said Europe's sovereign debt crisis
could hamper silver production and he ranks silver third in terms
of preference of the four precious metals behind gold and
palladium. The iShares Silver Trust (NYSE:
), the largest ETF backed by physical silver, has slid 3.25% in
the past month. The ETFS Physical Palladium Shares (NYSE:
) and the ETFS Physical Platinum Shares (NYSE:
) are both down more than 5.5% over the same time.
Regarding the gold miners, Freeze said investors need to
assess the risk/reward scenario.
"Investors should be looking at pure risk/reward," he said.
"GLD is more expensive while GGGG has been lagging, but its
underlying components should beat expectations. There's more
upside and less downside with the miners compared to the physical
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