The SPDR Gold Trust (ETF) (NYSEMKT:GLD) is the largest gold ETF. Although it has a 0.40% fee, it has tracked the price of gold fairly well. Over the last year, it’s down about 23%, while the spot price of gold is down about 22.80%.
A share of SPDR Gold Trust (ETF) (NYSEMKT:GLD) represents the right to a portion of gold stored in a vault in London, so the value of the ETF is tied directly to gold’s spot price. If gold rallies, SPDR Gold Trust (ETF) (NYSEMKT:GLD) should perform well. A number of major hedge funds have invested in SPDR Gold Trust (ETF) (NYSEMKT:GLD) in recent years. Both Paulson’s fund and Dan Loeb’s Third Point held stakes in SPDR Gold Trust (ETF) (NYSEMKT:GLD) at the end of March.
Given gold’s recent performance, it’s hard to be bullish on the yellow metal, but long-term trends still seem to be in gold’s favor. Continued money printing by the world’s central banks should support the gold price. Although the Fed may be considering tapering its asset purchases, other banks (like the Bank of Japan) continue to be aggressive. Dennis Gartman went bullish on gold late last week, in light of Japan’s ongoing easing.
The gold mining ETF
While SPDR Gold Trust (ETF) (NYSEMKT:GLD) is the big gold ETF, the aforementioned Market Vectors Gold Miners ETF (NYSEARCA:GDX) is the major gold mining one. If investors disagree with Rogers and Hendry, Market Vectors Gold Miners ETF (NYSEARCA:GDX) is an easy way to invest in the sector. Unfortunately, its expense ratio is 0.52%, but owning a basket of 30 mining stocks might be better than buying the stock of just one or two mining companies.
As with AngloGold Ashanti Limited (ADR) (NYSE:AU)’s labor troubles, individual miners can face various headwinds, irrespective of gold’s price. With Market Vectors Gold Miners ETF (NYSEARCA:GDX), you get 30, providing a level of insulation against external shocks. David Einhorn’s Greenlight Capital had a stake in Market Vectors Gold Miners ETF (NYSEARCA:GDX) as of March.
Playing gold
Despite gold’s recent selloff, many remain believers. But, perhaps bullish investors should consider playing the metal directly, using an ETF like GLD, rather than through the miners.
Although the inherent leverage in gold mining can lead to outsized gains during a bull market, the losses can be just as brutal during a correction. Moreover, owning a gold miner can leave one vulnerable to risks beyond just a gold price correction — just ask AngloGold Ashanti’s shareholders.
Joe Kurtz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Salvatore “Sam” is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Stay Away From Gold Miners originally appeared on Fool.com is written by Salvatore “Sam” Mattera.
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