April 21, 2014
From http://www.etf.com/sections/news/
Investing in gold miners should never be conflated with investing in gold.
Gold miners’ attractiveness as an investment is certainly debatable, but one thing is not: Investing in gold miners is very different than investing in gold itself. Gold miner equity is far more volatile than gold, and only weakly correlated to it.
Worse, the Market Vectors Gold Miners ETF (GDX | B-57) has declined 34 percent since its inception in May 2006. Meanwhile, gold itself has done quite well, despite a recent downturn: The SPDR Gold ETF (GLD | A-100)—which holds physical gold—returned 95 percent over that same period.
Worse still is that gold mining ETFs are a feature in America’s Riskiest ETFs, because not only are they more volatile than gold, they’re more volatile than the vast majority of ETFs on the market. In that particular report, it was the Market Vectors Junior Gold Miners ETF (GDXJ | D-29)—a smaller, riskier version of GDX—that was among the riskiest ETFs in the country.
The statistics keep getting worse for gold miners: Relative to earnings, they’re also among the most dearly priced (expensive) ETFs anywhere—as was noted in our report “The Most Richly Valued ETFs.” To be fair though, gold itself doesn’t produce any earnings, so the theoretical P/E on GLD would be infinity.
Again, there are definitely some sound theses for investing in gold miners, but the underlying point is that investing in gold miners is drastically different than investing in gold. Any investment thesis centered on gold should not be conflated with one focused on gold miners.
Spencer Bogart
April 21, 2014
From http://www.etf.com/sections/news/
