Gold spot prices have multiplied over the decade, leaping from
$250 per ounce to over $1600 per ounce today, having peaked in late
summer 2011 at over $1900 per ounce. But gold mining ETFs and
stocks have not performed as well.
[caption id="attachment_68663" align="alignright" width="300"
caption="There's gold in them there ETFs."]
Although still highly correlated to gold prices, gold mining
ETFs and stocks have lagged the total returns of the metal
Many industry participants note the disparity and believe that
one of two things will occur. Either the miners will appreciate to
be priced more in line with gold, or gold prices will fall,
ultimately achieving the same end, just with a less beneficial
As gold seems to have established a baseline of support around
$1600 per ounce over the last year, and as circumstances globally
seem to be worsening, it is reasonable to expect gold prices to
increase from here. If that is the case I would expect the miners
to start playing catch-up. But for emerging market investors, which
of the gold mining ETFs is the best choice?
There are several gold mining ETFs, but I'm going to discuss
them in terms of emerging market exposure. The two most popular
gold mining ETFs are the Market Vectors Gold Miners ETF (
) and Junior Gold Miners ETFs (
). GDX averages 15 million shares a day and GDXJ nearly 4 million
shares per day. GDX has the majority of its assets in Canada, but
also has a fair amount allocated to two emerging market regions:
Africa (16%) and Latin America (5%). Curiously its little sibling
GDXJ has very little emerging market exposure, with about 4% in
Latin America and a tiny, barely worth mentioning <1% in
There are two leveraged gold mining ETFs, the Direxion Daily
Gold Miners Bull 3x Shares (
) and the Direxion Daily Gold Miners Bear 3x Shares (
). NUGT has a lot of liquidity, averaging more than 3 million
shares per day, while DUST averages more than 300,000 shares per
day, but at 3x leverage they carry a great amount of risk. I would
not recommend these to anyone but the most experienced and skilled
The other three ETFs have the most emerging market exposure. The
Powershares Global Gold and Precious Metals Portfolio (
) has more than 17% of its portfolio in Africa. It also has 3.5% in
Latin America 3.5% and 1% to Asia. So its total percentage
allocation to emerging markets comes in at just under 22%.
The MSCI Global Gold Miners Fund (
) has a slightly higher total allocation to emerging markets at
about 23%. It breaks down as follows: Africa nearly 14%, Latin
America just under 6% and Asia a little more than 3%.
The third fund, the Global X Pure Gold Miners ETF (
), has the highest total exposure to emerging markets. It has
allocated 20% to Africa, a little more than 3% to Emerging Asia and
also a little over 3% to Latin America.
Although these three ETFs have a greater percentage allocated to
emerging markets, none of them are very liquid. RING has the
highest 90-day average trading volume of the three at 12,000 shares
per day. But that is not a lot. So we have to consider the purpose
of our investment.
If you are looking to specifically target gold miners in
emerging market countries, and you have a long term outlook, then
RING will suffice. But if you are thinking more short term then you
may want to look at the more liquid ETFs such as GDX. When we chart
the two side by side we see a very high correlation. For the short
term trader the amount allocated to emerging markets is virtually
As with most investing you must be clear in your objective.
Knowing your time horizon and expectations from the investment is
important. While you may want to target the ETF with the greatest
emerging market allocation, it may behoove you to use one of the
more liquid but highly correlated gold mining ETFs, despite lower
emerging market exposure.