Should You Own Gold Miners Instead of Gold?

The Fed opened the flood gates last Wednesday when they hinted at rate cuts in 2024.

It wasn’t just equities that caught a bid, but gold as well.

The precious metal had already performed exceptionally well.

But VanEck’s Gold Miner ETF GDX caught every financial pro’s eyes, according to our Trackstar Data.

Maybe that’s because the GDX has outperformed the S&P 500 over the last month by almost double.

And now, with rate cuts in sight, maybe it’s time to consider the GDX for your portfolio.

Key Facts About GDX

• Net assets: $12.08 billion
• 12-month trailing yield: 1.55%
• Inception: May 16, 2006
• Expense ratio: 0.51%
• Number of holdings: 54

Most investors and traders look at gold miners as a leveraged play on the price of gold.

The cost of mining gold and the amount mined rarely changes year to year. So any increase in the price of gold feeds directly to the bottom line.

The GDX holds 54 gold miners from around the world.

Source: VanEck

Of the 54 companies, 41% are in Canada, 19% in the U.S., 11% in Australia, and the rest scattered amongst countries from South Africa to Egypt.

Gold mining stocks will often trade along with the price of gold, though they can fall with the broader market during swoons.

That’s why you’ll notice the correlation to the S&P 500 is +0.45, signifying a loose positive correlation.

Source: VanEck

Performance

Gold miners, and specifically the GDX, have a decent track record through recent history.

However, you’ll notice an overall negative performance if you go back gar enough. This does not track with the actual price of gold.

Source: VanEck

The disconnect happened during the Great Financial Crisis when the price of gold continued to rise while gold miner stocks were dragged down with the broader market.

Competition

To help us evaluate the GDX, we compared it to other gold and precious metal miner ETFs.

• Global X Silver Miners ETF (SIL): SIL is essentially the same thing as the GDX, but attuned to silver miners. Silver, being more abundant than gold, is often used in manufacturing, with its price tied closer to economic activity.
• VanEck Vectors Junior Gold Miners ETF (GDXJ): Junior miners are small gold miners, some of which are early in the exploratory stages. These companies are often considered a higher leveraged play than typical gold miners.
• iShares MSCI Global Gold Miners ETF (RING): Despite billing itself as more ‘international’ than the GDX, RING is actually more concentrated, with over half its holdings in Canada and 22% in the U.S. 
• Sprott Gold Miners ETF (SGDM): The SGDM is even more concentrated with 75% of its holdings in Canada and 16.5% in the U.S.

All the gold miners come pretty close to one another in terms of performance. We suspect it goes back and forth based on market conditions.

Interestingly, the more ‘leveraged’ junior miner play underperforms its peers over the 5-year period.

Our Opinion 10/10 

The GDX is our top gold miner play for several reasons.

First, it comes with one of the lowest expense ratios in the market.

Second, it holds over $12 billion in assets.

Third, it trades 23 million shares per day with equally liquid options.

Without much daylight between the miner ETFs in terms of performance, we prefer the one with the best trading characteristics and history.