Proprietary Data Insights
Financial Pros Top Metal Miner ETF Searches This Month
GDX’s Popularity is Overdone
Halfway through the year, markets have failed to gain any upward momentum. That’s no surprise given inflation is at its hottest levels in 40 years.
Traditionally, commodities have been viewed as hedges against inflation. Largely because they have intrinsic value, and their prices tend to rise alongside consumer goods.
If you’ve visited a local grocery store or filled up a tank of gas, then you already know how much prices have spiked.
Savvy investors who got in early by investing in energy ETFs and stocks made out like bandits.
Oddly enough, gold has been historically viewed as an inflation hedge. However, the SPDR Gold Shares ETF (GLD), is down about 5% YTD.
Now the last time we had massive inflation, in the 1970s, gold prices nearly tripled.
CPI Inflation and Real Gold 1971 – 1981 (ZealLLC.com)
If you believe that lightning will strike twice and that gold is set up to make another run…the best way to play it might not be buying physical gold, trading gold futures, or even snagging shares of the SPDR Gold Shares ETF (GLD).
The best way to play the next gold bull run might be with the VanEck Gold Miners ETF (GDX).
Not only does it tend to provide more leverage than traditional gold, it’s the number one search among financial pros for mining ETFs.
Yet, we would argue that GDX is not a good investment over the long-term even though it’s a well-run ETF.
VanEck Gold Miners ETF (GDX).
The VanEck Gold Miners ETF (GDX)is designed to measure the performance of the NYSE Arca Gold Miners Index, which consists of a basket of companies involved in the gold mining industry.
Here are some quick facts about the GDX portfolio.
These are the top 10 holdings:
There are 54 total holdings, but the top three positions consist of 34% of the ETFs weighting. Newmont Corp (NEM) is in the largest position, with a weighting of 15.6%
Now, if you invested $10K in GDX when the ETF was founded in 2006, it would now be worth around $7K today.
Clearly, GDX is not a buy-and-hold investment. Unless you consider yourself a market timer, it’s been hard to make money in GDX.
GDX sees a considerable amount of action during the trading day. During an average session, 22.6 million shares will trade.
Furthermore, GDX has standard and weekly options, which are also heavily traded.
One reason why traders love GDX is the volatility and its low price. On any given day moves can range from 3% to 4%.
Typically when gold is hot, the miners outperform. On the flip side, when gold is trading sideways or bearish, the miners tend to underperform.
In other words, trading GDX offers greater risk and reward.
What many folks don’t realize is that the GDX often precedes moves in the yellow metal. So it’s a great leading indicator for gold traders.
Investing In GDX
One thing investors want to pay close attention to when selecting an ETF is the expense ratio. The expense ratio tells us how much the fund will be deducted annually as fees.
A good rule of thumb is to avoid ETFs that have an expense ratio higher than 1%. In GDX’s case, the expense ratio is 0.51%, which is not great when you compare it to the SPY which has an expense ratio of 0.09%, and the QQQ, which has an expense ratio of 0.20%
Another thing on investors’ minds these days is income. GDX pays its shareholders a $0.53 annual dividend for every share they own.
Our Opinion – 3/10
Although gold has not proved to be an inflation hedge, as most historians and economists believe. However, we believe gold will have its moment, and its prices will rise if inflation worsens.
If that does play out, GDX should do very well. Of course, it all boils down to timing and opportunity cost.
And because the timing is so hard to nail, we think your money is better invested somewhere else.
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