A Closer Look At The Gold Miners ETF

Nick Perry (Schaeffer's Investment Research) submits: According to a press release from Van Eck Global's site, their Gold Miners ETF (GDX) was launched last year as the "nation's first and only ETF offering broad exposure to gold-mining companies". With many sectors already having had ETF coverage for years, the gold stock area had definitely been lacking, so it was nice to see this option open up to investors. And speaking of options, this ETF does trade them but keep an eye on some of the bid/ask spreads.

I always like to investigate what stocks comprise an ETF and note how the weightings are set up. The table below was pulled from Van Eck's site and shows the top 10 components:

The top 10 stocks make up nearly 70% of the GDX's exposure with the top 3 stocks making up nearly a third. If you are interested in trading the GDX, you had better make sure you like the prospects for Barrick Gold, Newmont Mining, and Goldcorp.

The price chart only gives us around a year of action but that is enough to see an interesting situation developing:

Since the beginning of November 2006, the GDX has been trapped in a wide trading range with support near 36 and resistance near 43 containing the action. The GDX has staged a strong rally since the end of June bouncing from the low end of this range to the top. The last 3 times the shares have pushed in on this ceiling, they were quickly rejected, so it will be interesting to see if that starts to happen again. A bit of resiliency here could suggest a breakout is looming.

Comments

[ptrader:]

AGREE! actaully surprised at some of those weightings!!! thats why switching a lot of money to E MINI GOLD FUTURES, it's a more direct way to invest, ties of a lot less capital (10x leverage), very liquid and easy to get in and out of ---of course still like the gold etfs and a variety of individual stocks but the minis offer an easy pure play----also I like to look at the NEW "Commitment of Traders Charts" which chart the change in over all postions of: Big Speculators vs Small Speculators vs Commercial Hedgers ----this is a great way to evealuate prevailing and changing sentiment of Deep Pockets, Smart Money and the Little Guy---charted over 4 or 5 months so you can see which way each one is heading, this can be found at FantasyFuturesExchange... thanks for the post and concise info on each etf weighting! --PK

2007 Jul 23 10:56 AM