Investors Shift $1.5B From Physical Gold Funds Into Gold Miner ETFs

| About: VanEck Vectors (GDX)

Gold miner stocks have outperformed bullion over the past month and caught the attention of investors, who have channeled money into exchange traded funds tracking the shares.

“Gold mining stocks have lagged the performance of the yellow metal so badly in 2011 that one of Wall Street’s favorite investment ideas just now is to buy the miners on a ‘catch up’ move to the commodity itself,” said Nicholas Colas, chief market strategist at ConvergEx Group.

Over the past month, gold miner ETFs have seen inflows of $1.5 billion, while investors have pulled more than $2 billion from gold-backed funds.

The largest miner ETFs are Market Vectors Gold Miners (NYSEARCA:GDX) and Market Vectors Junior Gold Miners (NYSEARCA:GDXJ). In terms of total assets, gold bullion ETFs are much larger than miner ETFs. [Gold Miners ETF Pares Gains After Breakout]

Colas points out that gold has been choppy in recent weeks, posting a nearly 4% loss for the trailing month despite the European sovereign debt crisis, while gold miner ETFs have risen. Still, bullion is outperforming in 2011.

“One school of thought has it that gold miners are now the place to be, and the near term performance of the group does indicate some change in momentum. This kind of performance gathers investor attention quickly – especially in volatile markets – and ETF money flows are responding,” the strategist wrote in a note Wednesday.

“Bottom line: the move in assets out of gold ETFs and into gold miner fund is a recent phenomenon, to be sure, but the one month data does seem to show that capital is moving (with a lot more potentially behind it) and this is pushing the mining stocks higher.”

Market Vectors Gold Miners ETF (GDX)

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Disclosure: Tom Lydon’s clients own GDX.