Gold ETFs: Bullion or Mining Stocks?

March 20th at 10:45am by John Spence

Gold miner shares continue to lag the precious metal’s price as bullion-backed exchange traded funds have made it much easier to invest in physical gold.

Market Vectors Gold Miners ETF (NYSEArca: GDX) fell to a fresh 52-week low on Tuesday and is in negative territory for 2012. [Gold Miner ETFs Decline]

The rising popularity and ease of investing in gold ETFs has likely diverted money away from miner stocks. [Gold Miner ETFs May be Near Turning Point]

“Gold ETFs are designed to move in tandem with the price of bullion as each share of the fund is backed with metal. Shareholders of producers, by contrast, may suffer the effects of mining accidents, cost overruns, asset writedowns or broader stock market swings,” according to a recent Bloomberg report.

Gold miner ETFs have also been much more volatile than bullion prices.

“Why should you be looking at mining stocks when you have geopolitical risks, labor problems and rising-cost issues?” said Donald Selkin at National Securities Corp. in the Bloomberg story. “I would prefer owning gold and exchange traded funds as I do not have to worry about anything else beside prices.”

Some of the largest bullion-backed ETFs listed in the U.S. include SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL).

Market Vectors Gold Miners ETF

Full disclosure: Tom Lydon’s clients own GLD.

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.