An exchange traded fund that invests in small-cap gold miners fell more than 7% on Tuesday to a new all-time low as more investors use bullion-backed ETFs for exposure to the precious metal rather than miner shares.
Market Vectors Junior Gold Miners (NYSEArca: GDXJ) was down 30% over the past three months heading into Tuesday’s sell-off. [Will Miner ETFs Finally Emerge from Gold’s Shadow?]
Its large-cap counterpart Market Vectors Gold Miners (NYSEArca: GDX) slipped nearly 4% on Tuesday. [Are Bullion ETFs Responsible for Gold Miners’ Dismal Performance]
Albert Friedberg, one of Canada’s top hedge fund managers, believes physical gold is a much better bet than shares of producers, reports Martin Mittelstaedt for The Global and Mail.
As a result of the extra liquidity central banks have pumped into the markets, along with record low interest rates, he thinks physical metals will benefit in the long run.
Institutional investors are trading on this trend; however, they are favoring bullion-linked ETFs. Consequently, gold stocks no longer carry the premium multiples they once did and now trade at valuations similar to other metal producers, he explained.
“If you want to be in gold, you’re better off, it’s simpler to be in gold itself than be in mining shares,” Friedberg said in the article.
Miners and producers carry additional risks, such as management styles, depleting deposits, regional conflicts, strikes, infrastructure concerns and financing, among others.
Gold was trading at around $1,550 Tuesday, but Friedberg believes the recent weakness is only a temporary correction in a long-term uptrend. [Gold ETFs Decline in Risk-Off Trade]
Gold ETFs include:
- SPDR Gold Shares ETF (NYSEArca: GLD)
- iShares COMEX Gold Trust ETF (NYSEArca: IAU)
- ETFS Physical Swiss Gold Shares ETF (NYSEArca: SGOL)
Market Vectors Junior Gold Miners
For more information on gold, visit our gold category.
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own GLD.