Precious Metals Exchange Traded Fund

By: andymanca
On May 22nd a new metals based Exchange Traded Fund began trading on the Amex (GDX). The new Market Vectors - Gold Miners ETF was launched by the Van Eck Global firm and trades under the ticker symbol GDX. Those who follow the Exchange Traded Fund Industry are likely to be aware of streetTRACKS Gold (GLD), iShares Comex Gold Trust (IAU) and iShares Silver Trust (SLV). All these funds have come into being with a great deal of fanfare. This new fund which tracks the Gold Miners Index happened to have been launched during one of the most precipitous drops in precious metals prices seen in years. No wonder why you may have missed its launch.

Its' downplayed launch was too bad, especially because the Gold Miners ETF is the only one of its kind in the US. Though it is related to the precious metals industry, it is much diferent then the GLD, IAU, and SLV Funds, which are all based on the prices of either silver or gold. This is a very narrow focus, much more like investing in commodities then in equities.

The Amex Gold Miners Index, is the first exchange-traded fund in the U.S. offering investors exposure to the gold-mining equity market, as opposed to just the metal itself. This is more broad based for investors and is based on equities in the industry not commodity prices. The new ETF may present more opportunities to benefit from volatility, as mining-related shares tend to move more dramatically than overall bullion. Another key difference is that, unlike GLD, the GDX is optionable. The top ten holdings in this new ETF are:

Newmont Mining13.51
Barrick Gold 8.50
AngloGold Ashanti 7.51
Goldcorp 6.53
Gold Fields 6.50
Freeport-McMoran 6.16
Glamis Gold 4.97
Harmony Gold 4.37
Kinross Gold 4.06
Buenaventura 3.72

With the recent downturn in gold and silver stocks , much of the thunder was taken out of the launch of the GDX. This fund had the unfortunate luck to be released for trading during a period in which the precious metals have seen their greatest setback in years. The most popular of the Gold ETF's streetTRACKS GLD has been trading at a volume of 10 to 20 million shares for most of May. The Gold Mining ETF, GDX, has traded at a volume of 200,000 to 600,000 shares in its first week. GDX, which is a broader based fund then GLD, may have easily traded at a much higher volume its first week, if it wasn't for a steep downturn in precious metals.

The question now is it a good time to buy this new ETF? The Gold Mining Index which this new Exchange Traded Fund is based on, has just dropped from 1200 to 1000 in one week, a big drop for an index of stocks. A bounce here is likely. There was a great deal of speculation in gold. Even if this is the bottom, it will take some time before Gold prices begin to recover from their recent plunge. Keep a close eye on the trading volume for GDX to see if institutional investors begin moving into this fund.
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