Gold mining exchange traded funds can be used as a leveraged, affordable play on high gold prices. Investors have put more capital into the Market Vectors Junior Gold Miners ETF (NYSEArca: GDXJ) despite the beating the sector took earlier in the year based on the South African platinum mine strike.
“What separates GDXJ from its competitors is the mandate each fund follows. GDXJ targets junior gold mining companies, the majority of which are still in the exploration phase and haven’t begun producing,” Paul Baiocchi wrote for Seeking Alpha. [The Outlook for Gold Miner ETFs]
Gold prices rallied from late Summer into early Fall and this is when gold mining stock ETFs outperformed the price of gold, however, when gold prices dropped, miner stocks got beat up, Christian Magoon wrote for Kitco News. GDXJ has lagged the Market Vectors Gold Miners (NYSEArca: GDX), the large-cap counterpart, but has still been able to gain inflows. Year-to-date, GDXJ has seen inflows of $1.1 billion in assets, while GDX has gained $772 million.
Junior miners will help investors gain more upside from a run-up in gold prices. The area of the market is more volatile, but the reward is a leveraged play on gold prices. The junior miners ETF has seen no redemptions since July 12 and has been relatively stable. [The Case for Gold Miner ETFs]
GDXJ invests in medium to small-cap sized companies involved in any revenue from gold and silver extraction. About 80% of assets are targeted to the gold mining industry.
Investors in miners beware – the labor strikes in South Africa could have a negative impact upon all mining and precious metals shares since a large amount of the world’s precious metal production comes from the region. Currency risk is another factor, and although GDXJ does not hold direct exposure to the rand, there is still the risk of viability on a small or newer company, reports Paul Baiocchi for Seeking Alpha.[Three Gold Miner ETF Options]