Market Vectors Gold Miners ETF (AMEX:GDX)

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Gold will continue to go up in value as long as we keep printing dollars and the international demand stays strong.

The investment seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the NYSE Arca Gold Miners Index.

At resistance

As Miners stocks catch up to the price of Gold, they will outperform the S&P 500.

GOLD

It's had a long run and there's just too much agreement on this play.

Gold miners haven't been performing as well as the metal. I think this will correct itself as gold continues to rise.

I'm no gold bug, but the price of miners is cheap compared to the price of the metal right now.

Deej

hickey rec

BUY Market Vectors Gold Miners ETF (GDX)

Posted by intelledgement on Thu, 07 Apr 11

We have been long gold via the SPDR Gold ETF (GLD) for all but a few months since the inception of the portfolio in January 2007. We believe the prices of commodities in general and gold in particular are headed north as the effect of the massive government spending inevitably leads to inflation and perhaps even risks the integrity of the dollar.

The price of gold has not moved much so far in 2011, even as other commodity prices have continued to surge. We expect this interregnum to end soon, and therefore consider this a relatively good time to buy gold. But as we already own GLD, we have decided to increase our exposure here by going long on the Market Vectors Gold Miners ETF (GDX).

In theory, as the price of gold climbs—all things being equal—the rising profits of gold miners can afford one a better return on investment than owning gold. This is because given a fixed cost to get an ounce of gold out of the ground, the profit margin of a mining company is “leveraged.” Let’s say gold is going for $1000/ounce and it costs a mining company $900 to produce that ounce of gold. They are making a profit of $100 on every ounce. Now if you buy gold here, and the price goes to $1100, you have a profit of 10%. But if you buy the mining company instead, their profits are up from $100/ounce to $200/ounce—a 100% increase. Their stock probably won’t double, but it is likely to go up considerably more than 10%.

Of course, all things are not equal. For one thing, mining is a capricious activity, fraught with risks—accidents, bad exploration results, the country you’re operating in has an unstable government, your ore is of poorer quality than expected and requires expensive and technically difficult processing, etcetera, etcetera. For another thing, all things are not equal—in an inflationary environment, your costs of production are going to rise, too, cutting into that leverage effect.

However, we believe that as the dollar, the euro, and the yen become shakier, the relative demand for gold as a safe storehouse of value will increase and thus the price rise will outstrip the pace of inflation…and consequently, gold mining companies in general should prosper. And of course the way to avoid the risks attendant to any particular miner is to spread that risk over many miners…which brings us to GDX.

This fund has been around for nearly five years, and is up 70% in that time (compounded annual growth rate of 12%) compared to +6% for the S&P 500 (CAGR of +1%). It is liquid, with over nine million shares traded each day on average, and a market cap of $6.9B. The Gold Miners ETF seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the NYSE Arca Gold Miners Index. 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. For more info, including details on expenses, dividend and price history, performance versus the index, and holdings of the fund, check out Van Eck Global’s website.

http://www.marketvectorsetfs.com/funds/GDX.aspx

junk

TSPY rec

As we all know gold has been on a tear for sometime now. It is to the point now that Gold itself and the main ETF that tracks it (GLD) have priced themselves out of many individual in vestors and home gamers. This class of investor will be looking to get in on the Gold Rush and GDX is a great alternative gold play. It holds a group of mining companies. As the price of gold rises the profits for these mining companies will rise as well. As of this posting it yields .21% and has a YTD return (MKT) of 16.01%.

Many here on CAPS expect gold to go to the moon. I am not so sure about it, but gold has proven to be an excellent inflation hedge. Speculating that we will get at least some inflation in the future, I am hedging with some gold plays.
In general, miners will go up if gold goes up. They are strongly leveraged against the gold price: if gold is $1000 and the cost of mining $500, the profit is $500. If gold were to double to $2000, the profit triples to $1500. I am no expert in gold mining (there are plenty experts in this industry here on CAPS, so don't quote me), but a gold miners ETF is a safe bet if indeed gold prices go up. I am putting my money where my mouth is...
Disclosure: long GDX at the time of writing.

I like gold.

Inflation is on the way and gold is a hedge and miners are more leveraged than the metal itself.

Its is based on AU which is real value not arbitrarily set like paper money.

currencies aren't doing so well. Governments can't balance budgets and they can't print money forever. Gold is a fixed supply.