Ben Bernanke's Jackson Hole speech has generally been
interpreted to mean another round of quantitative easing (QE3)
aka 'printing money' is coming. This would devalue the
dollar, and given the inverse relationship between gold prices
and currency prices, QE3 means higher gold prices.
Already, traders and investors have bought in response to the
speech, sending gold prices higher in advance of any further
quantitative easing.
Two weeks ago Emerging Money
profiled several gold ETFs
. Two of the most most popular gold-mining ETFs are the Market
Vectors Gold Miners ETF (
GDX
,
quote
) and Junior Gold Miners ETF (
GDXJ
,
quote
). Since then, GDX has averaged about 11.3 million shares a day
and GDXJ almost 4 million shares per day. Neither fund however,
is heavily invested in emerging markets. GDX has most of its
assets in Canada, though it does have a notable amount in Africa
(16%) and Latin America (5%). GDXJ has very little emerging
market exposure, with only 4% in Latin America and less than 1%
in Asia.
Three other gold ETFs have more emerging market exposure. The
PowerShares Global Gold and Precious Metals Portfolio (
PSAU
,
quote
) has more than 17% in Africa, 3.5% in Latin America and 1% in
Asia. The MSCI Global Gold Miners Fund (
RING
,
quote
) has a little more in emerging markets, with 14% in Africa,
about 6% in Latin America and about 3% in Asia.
The Global X Pure Gold Miners ETF (
GGGG
,
quote
) has the highest total exposure to emerging markets of the
three, with 20% in Africa, approximately 3% in emerging Asia and
about 3% in Latin America. As previously mentioned, these
ETFs are very illiquid, with each averaging plus or minus 5,000
shares per day in the last two weeks. Given the high correlation
to GDX and GDXJ, emerging market investors seeking gold-mining
exposure would probably be best served by investing in those two
more liquid ETFs.
The following chart shows the SPDR Gold Shares Trust ETF (
GLD
,
quote
).
GLD has been moving higher over the previous two weeks; the
extreme reaction to the Federal Reserve chairman's speech at
Jackson Hole is obvious and circled in purple. This recent action
has helped gold prices and the ETF move back toward their
longer-term bull trend. The metal and GLD have been in a slump
for a year, which had some proclaiming the end of the bull market
in gold.
The three-year chart of GLD above illustrates this longer-term
trend and how the recent breakout has realigned GLD for
additional gains. The gold-mining ETFs have not performed as well
as GLD and therefore offer potentially greater gains if gold
prices continue to rise.
The 14-day chart for GDX and GDXJ shares characteristics with
the 14-day chart for GLD, as the ETFs have also benefited from
the recent Federal Reserve developments. The longer-term
charts, however, tell a different story.
Although both ETFs are higher today than they were three years
ago (albeit barely higher in the case of GDXJ), they are also
well off the highs reached in the summer of 2011, when gold
prices hit above $1,900 per ounce. With gold currently trading
near $1,700 per ounce and expected to go higher, it is reasonable
to expect GDX and GDXJ to do so as well. But because those ETFs
own gold-mining companies which are subject to different
variables from the GLD ETF, it is difficult to say whether they
will reach those previous highs.
That being said, higher prices should be expected if gold
continues to climb.