Gold Miners ETF Caputures Upside, Avoids Individual Company Risk

On Oct. 25, I noted the positive price action in gold which consisted of a sharp 1-day sell-off and a quick recovery. At the time, gold was trading in the low $590's and the HUI was at 316. Since then, gold has climbed to $620's and the HUI has consolidated in the high 320's where several retracement levels congregated.

We saw similar actions yesterday, where gold was up ~$16 after easing over $8 the day before. Concurrently, HUI gained over 3% to 338+. The minor drawback I can see is that the PM stocks are in overbought territory. A prudent plan for gaining PM exposure anew may be to take some position now and the rest upon a pull back to the low 330's.

One way to capture the upside in the miners while circumventing individual company risk is through the Market Vectors Gold Miners ETF (GDX). Over its short life, it has a very high correlation to the HUI index.

PMs are extremely volatile, so please be sure to do you due dilligence and adhere to a strict allocation and stop-loss discipline.

Comments

[kkin365:]

Good and timely. What is GDX's expense ratio? Cramer recommended AUY; it is probably too late to take a position now. omooc

2006 Nov 10 09:39 PM