Using Mining Companies to Participate in the Gold Rush

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.

With an overall positive outlook on gold in the stock market at this moment, I feel that it is the perfect time to educate investors about the different types of exchange-traded funds (ETFs) that are focused on or pegged to the precious metal. To serve that end, I’ve been shining a spotlight on some of the biggest and best gold funds out there during the last few weeks. This week, I want to present one of the most popular gold funds in the global mining segment, the Market Vectors Gold Miners ETF (GDX).

Rather than focus on the price of gold or the physical possession of gold bullion, GDX’s niche is holding publicly traded companies that are involved in the mining of gold and silver. GDX tracks the NYSE Arca Gold Miners Index, which gives GDX access to almost 30 precious metals mining companies around the globe, including some of the industry’s biggest names, with a nice blend of small-, mid- and large-cap stocks represented. Note that some of the firms mine other precious metals besides gold, so GDX is not strictly a gold play. Nevertheless, gold is the primary focus of the fund.

The resurgence of gold on the global stage has created a kind of monetary flood into related areas and firms, offering a well-timed boost before the encroaching earnings season hits. And mining funds are on the rise, as demonstrated by the 52% jump in GDX’s share price since the beginning of the year.

GDX

GDX has more than $6 billion in total assets and an expense ratio of 0.53, plus a small dividend yield of 0.58%.

View the current price, volume, performance and top 10 holdings of IAU at ETFU.com.

As GDX invests in actual companies and firms, it is different from some gold funds I’ve recently spotlighted and I can pass on information about the top holdings in the fund. Top 10 holdings for GDX make up slightly more than 50% of total assets, and include a lot of familiar names if you are familiar with mining companies. Barrick Gold Corp. (ABX) is the largest holding, with 6.78% of assets. It is closely followed by Newmont Mining Corp. (NEM), with 6.62% of assets, and Goldcorp, Inc. (GG), at 6.27% of assets.

If you’ve been considering investing in a gold fund of late, but find it unnerving that certain gold funds operate without tracking actual companies, then you might feel more at home with the approach of the Market Vectors Gold Miners ETF (GDX).

If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful ETF Investing newsletter.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an e-mail. You just may see your question answered in a future ETF Talk.

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