GDX-The Gold Mining Stocks ETF-Finally!
The long awaited launch of the Gold Miners ETF finally brought a very nice vehicle for gold investors who like buying a bunch of stocks in one cool "stock like" instrument. Swelling assets of QQQQ, SPY, etc. have been responsible for the launch of many ETFs in the last couple of years; and with the launch of GOF, one important sector can finally be traded easily.
The ETF is to mimic the Amex Gold Index. This index in turns correlated well with the better known Philly's ^xau. See chart here for long term performance of ^xau here. NEM, AU and ABX are the top 3 holdings in GDX, comprising 30% weight. The ETF has 43 total companies in it; essentially covering the worldwide gold miner landscape pretty darn well.
Note that investors have had the option of buying Gold bullion directly with instruments like GLD, which are tied to the bullion price. However, GLD is far more risky and is really a speculating vehicle; an ETF like GDX is more to do with traditional "ownership" of stocks and the underlying companies. It is conceivable that gold prices can shoot up for unknown reasons in the short term, but mining stocks probably won't shoot up that much, because stockholders realize that price spikes are normally short lived. The same holds for moves on the downside.
ASA has been covered in this blog frequently; from now on, I will include commentary about GDX. Eventually, GDX will probably turn out to be a better investing vehicle and the I will stop covering ASA altogether (because it is actively managed and has extra fees, making it a higher expense ratio than GDX). GDX also trades options on it.
With the present sell-off in Gold, investors can think about doing buy writes on GDX or ASA. These are lower risk than buying stock outright; and the premiums are very juicy.
Sanjay John G.
The ETF is to mimic the Amex Gold Index. This index in turns correlated well with the better known Philly's ^xau. See chart here for long term performance of ^xau here. NEM, AU and ABX are the top 3 holdings in GDX, comprising 30% weight. The ETF has 43 total companies in it; essentially covering the worldwide gold miner landscape pretty darn well.
Note that investors have had the option of buying Gold bullion directly with instruments like GLD, which are tied to the bullion price. However, GLD is far more risky and is really a speculating vehicle; an ETF like GDX is more to do with traditional "ownership" of stocks and the underlying companies. It is conceivable that gold prices can shoot up for unknown reasons in the short term, but mining stocks probably won't shoot up that much, because stockholders realize that price spikes are normally short lived. The same holds for moves on the downside.
ASA has been covered in this blog frequently; from now on, I will include commentary about GDX. Eventually, GDX will probably turn out to be a better investing vehicle and the I will stop covering ASA altogether (because it is actively managed and has extra fees, making it a higher expense ratio than GDX). GDX also trades options on it.
With the present sell-off in Gold, investors can think about doing buy writes on GDX or ASA. These are lower risk than buying stock outright; and the premiums are very juicy.
Sanjay John G.
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