Time to Start Buying Mining ETFs?

 |  Includes: GDX, GDXJ, XME
by: Gary Gordon

First, U.S. economic growth (GDP) for Q3 was revised significantly lower. Then, new home purchases plunged to levels not seen since April… 7 months ago.

(At least it’s clear why the Fed has stuck to its guns on leaving enormous levels of monetary stimulus in place. Whether one agrees with their approach is entirely another matter.)

It follows that after a month of “talking up” the U.S. dollar’s newfangled strengthening, and gold’s simultaneous weakening, miners are atop the 1-day (12/23/09) leader-board. Normally, I wouldn’t give a single day spike much thought. However, few equity investments have been as intriguing to watch as the ultra-volatile metal mining ETFs.

From a December high, Market Vectors Gold Miners (NYSEARCA:GDX) had lost -17.5% and Market Vectors Junior Gold Miners (NYSEARCA:GDXJ) had dropped -16.0%. There were similar sell-offs from GDX price peaks in October, June and March, where GDX gave up -14%, -21% and -19%, respectively.

Yet in each instance, Market Vectors Gold Miners eventually rocketed higher, setting new highs along the way. Could the turning point be here? Is this the dip that mining enthusiasts should be purchasing? (Click to enlarge)

GDX in December 2009Click to enlarge

If the radical price swings for the gold miners are more than you can handle… one can diversify the metal mining exposure. The SPDR S&P Metals and Mining Fund (NYSEARCA:XME) is less affected by the price of a single underlying commodity (i.e., gold).

XME December 2009Click to enlarge

Disclosure Statement: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. The company and/or its clients may hold positions in the ETFs, mutual funds and/or index funds mentioned above. The company does not receive compensation from any of the fund providers covered in this feature. Moreover, the commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities.