Submitted by
SK
Options Trading
as part of our
contributors program
.
The embattled mining sector is breathing a little easier of late
as gold and silver mining stock prices show signs of improvement.
In order to try and keep this latest flurry of activity in
perspective we examine the progress being made at differing time
intervals. This is a comparative analysis of gold and silver, a
gold miners ETF, a junior gold miners ETF and an index which
broadly represents those miners which do not hedge their
production.
For this exercise we are using gold and silver prices along with
two ETF's which represent both gold miners and junior gold miners
together with one mining index which are follows:
GDX
Market Vectors Gold Miners ETF (NYSEARCA:GDX)
Market Vectors Gold Miners ETF (the Fund) seeks to replicate as
closely as possible, the price and yield performance of the NYSE
Arca Gold Miners Index (GDM). The Index provides exposure to
publicly traded companies worldwide involved primarily in the
mining for gold, representing a diversified blend of small, mid and
large-capitalization stocks. GDM is a market
capitalization-weighted index, and provides exposure to
publicly-traded companies worldwide involved primarily in gold
mining, representing a diversified blend of small-, mid- and large
capitalization stocks. The Fund's advisor is Van Eck Associates
Corporation.
GDXJ
Market Vectors Junior Gold Miners ETF (NYSEARCA:GDXJ)
Market Vectors Junior Gold Miners ETF (the Fund) seeks to
replicate as closely as possible, before fees and expenses, the
price and yield performance of the Market Vectors Junior Gold
Miners Index (the Index). The Index provides exposure to a global
universe of publicly traded small- and medium-capitalization
companies that generate at least 50% of their revenues from gold
and/or silver mining, hold real property that has the potential to
produce at least 50% of the Company's revenue from gold or silver
mining when developed, or primarily invest in gold or silver. The
Fund will normally invest at least 80% of its total assets in
companies that are involved in the gold mining industry. The Index
is the exclusive property of 4asset-management GmbH, which has
contracted with Structured Solutions AG to maintain and calculate
the Index. The Fund's investment advisor is Van Eck Associates
Corporation.
HUI
The AMEX Gold BUGS(Basket of Unhedged Gold Stocks)Index
represents a portfolio of 15 major gold mining companies. The Index
is designed to give investors significant exposure to near term
movements in gold prices - by including companies that do not hedge
their gold production beyond 1 1/2 years.
Now, take a look at the following three charts which compare the
percentage change for each of our five investment vehicles:
Chart No 1: A comparison over 3 years:
Chart No 2: A comparison over 1 year:
Chart No 3: A comparison over 1 month:
Conclusion:
We can see that silver and gold have been the best performers
over the last three years and also over the last one year period.
However, both of these two precious metals have lagged behind over
the last month.
So the question that we must wrestle with is whether or not this
is the start of a rally by the stocks that will see them outperform
the metals or not. As we see it 'one swallow does not make a
summer' and at the risk of missing out on the start of any rally by
the miners we will wait a tad longer before becoming bullish on
them.
The reason we would invest in the mining sector would be in the
belief that it offered us a superior return over that of the
metals. That superior return is required as compensation for taking
on the risks that are inherent in the mining industry. The
additional
leverage
is your reward. Now, over the last few years that leverage hasn't
been there, so for those wanting to obtain a leveraged return,
options on gold and silver could well be the vehicle for you. You
will need a robust stomach as the oscillations can be a tad nerve
racking to say the least. However if you deploy a well thought
options
strategy
the profits can give your portfolio a real boost. When you purchase
a
Call
option it is comforting to know that the amount you paid is the
maximum that you can lose and that the profit potential can be many
times greater your purchase price.
As always its your cash and its your call so go gently with your
investments and keep some cash on hand for that 'one off' event
that could rock the markets and present you with a wonderful
opportunity to capitalize on it.
Have a good one.
Have a good one.
Bob Kirtley
URL: www.skoptionstrading.com
URL: www.gold-prices.biz
Email: bob@gold-prices.biz
Disclaimer: www.gold-prices.net or
www.skoptionstrading.com
makes no guarantee or warranty on the accuracy or completeness of
the data provided. Nothing contained herein is intended or shall be
deemed to be investment advice, implied or otherwise. This letter
represents our views and replicates trades that we are making but
nothing more than that. Always consult your registered adviser to
assist you with your investments. We accept no liability for any
loss arising from the use of the data contained on this letter.
Options contain a high level or risk that may result in the loss of
part or all invested capital and therefore are suitable for
experienced and professional investors and traders only. Past
performance is not a guide nor guarantee of future success.