Doc 224899

Well-Timed Launch for New Junior Gold ETF

It's all about size, and timing! If GDXJ acquires a large volume of shares traded, it will pull up the demand/supply curve for many of these small miners and share prices will also be pulled upwards. GDXJ share prices should leverage GLD and GDX, all things being equal, and volume of GDXJ shares traded will increase the extent to which the individual small miner stocks leverage the price of gold and the value of the gold miner sector.

In the same way GLD's bullion holdings raise the price of gold when lots of shares of GLD are outstanding, a large volume of GDXJ outstanding shares will raise the prices of small miner stocks.

Gold Stocks Look Cheap - BMO

Most people should stick to trading shares of gold ETF’s and gold mutual funds. Let me try to explain why:

Trading shares of gold stocks, shares of gold mutual funds, and shares of gold ETF's is much more convenient and less expensive than trading physical gold. If the market infrastructure doesn't break down in an apocalyptic collapse, shares will always have a market in which they can be traded, and shares will leverage the price of gold bullion.

If there is an apocalyptic collapse, will you trade me my gold coin for that nice fresh-looking rabbit you have there?

I can't tell a genuine Credit Suisse 1 ounce gold bar from a counterfeit. Can you? How about a 2007 US Gold American Eagle? Are 1 ounce Canadian Maple Leafs worth more, or less, than 1 ounce Krugerrands? What year American Silver Eagles are 0.999 pure silver, and what years are 0.900 pure silver? Is this a real Morgan Dollar, or is it fake? Is the Suisse 20 Franc coin 0.1867 ounce pure gold and the British gold sovereign 0.2354 ounce pure gold, or the opposite? Is this ring 10 carat or 14 carat or 18 carat or 22 carat gold? What’s a carat, anyway? Because almost all people don’t know these things, and only a few people do know them, those few who do get paid a commission for every gold trade they are involved in. Then there is the cost of storing gold, the problems associated with recovering it if it is stolen, and insuring it, and the risk of government confiscation. FDR confiscated privately held American gold, and guess who likes to think he follows in FDR’s footsteps.

How likely is it, in the event of a collapse in the banking system, that anybody will even take a chance on trying to trade precious metals, or that there will be fair trading? What will be the risks in trying to go some place to trade?

On the other hand, trading shares of gold stocks is not for the amateur or the faint of heart, as many factors are involved that aren't easy to keep track of unless you can put hours a day into it. For most people gold ETF's and gold mutual funds are the best way to cash in on the timeless value of gold, especially during uncertain times. Fund managers generally do a better job than the individual investor can do, even if it involves a passively managed ETF based on a fixed portfolio. That’s why most investors and most personal financial advisors don’t know much, if anything, about investing in individual gold stocks. Among the few that do, many of them admit they are only familiar with one or a very few gold stocks.

For one thing, gold stocks generally have a relatively short window of opportunity in which maximum profits can be obtained, sometimes just minutes, sometimes hours to days, and if you don't happen to be watching the board with an intent to sell high when the price is up it can cost you 10 or 20%, or more. If your intent is to buy low, minutes to hours can also cost you 10 or 20 %. If you miss the tops and bottoms by several days to several weeks, it can easily cost you half the potential value of your investment in a position.

Gold stocks have a great deal of volatility, by comparison to stocks in most other sectors, and most of the time they flop around in a spastic price limbo between their rare highs and rare lows.

For somebody willing to be a student of the market, of politics, of currencies, of monetary policies, of central bank policies, of environmental issues, of tribal property rights, of geography, and of geology, investing in gold stocks is a terrific sport and a thrilling challenge, and there's a pile of dough out there waiting to be made or lost.