Doc 224899

Van Eck's Highly Anticipated Market Vectors Junior Miners ETF Is Set for Its Debut

All of Jeff Nielson's concerns are valid, and GDXJ could buy nothing but high risk derivatives of junior miner stock and sink like a stone, although the most obvious possible explanation of a thing (the ETF will buy shares of small gold miner stocks) is usually the way that thing happens in reality.

There are two ways to play this: trade shares of the ETF (which is what the vast majority of brokers and personal financial advisers will tell their clients, so a heck of a lot of shares will be traded), or trade shares of the stocks in the ETF's list of holdings. For the time being, I'm doing the latter. IPOs of ETFs are tricky, and ETFs (e.g., SMN) don't always perform like the label implies they will (Jeff's point, again).

If people buy a large volume of GDXJ shares, and they almost certainly will, it will pull up the demand/supply curve for many of these small miners, and share prices of the small miners’s stock 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 leverage the value of the gold miner sector.

In the same way GLD's bullion holdings raise the price of gold when lots of new shares of GLD are bought, an increase in the volume of GDXJ outstanding shares will raise the prices of small miner stocks. I’m betting that will happen in the next week or two, as this new ETF catches on, and it will pull up share prices of the junior miners.

Some of the stocks, like GRS and JAG and NXG, have terrific fundamentals right now, and they should do very well as GDXJ pulls their share prices up while their fundamentals combined with the rising price of gold have the same effect.

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.

How Investors Can Trade the Dollar

Kristjan,

A good gold miner stock will leverage the gold market, and may be more predictable and more profitable than a double long gold ETF. It takes a little study, and it helps if one can hold one's breath for more than 60 seconds, but the miners are where leverage can be found outside the ETFs.

Having played this game for the last couple of years, I'd say it is useful to remember that gold swings in and out of being tied to the dollar, to global currencies, to oil, to treasuries, and to broad market indices. It also changes faces and one month it will be a safe haven in a crashing market, and next month it will be tied to strong commodities. It also wears three hats at once sometimes. Finally, it is also subject to behind-the-scenes manipulation, and to "legitimate" regulation by central banks and the commodities exchange(s).

Jeffrey Christian: Foreseeing Bright Days for Metals

Apex Silver (SIL)was recently described (Christopher Amberger, October 17, 2008, Seeking Alpha) as likely to file for bankruptcy because it's only realistic source of cash was San Cristobal Mine, and it looked like Apex was going to have to settle obligations by granting or selling San Cristobal to Sumitomo (which would leave Apex with no cash and no chances for obtaining credit). Since then, Apex shares have been diving. It would seem that Jeffrey Christian either knows of some reasons for confidence in Apex Silver that haven't been discussed, or isn't aware of the San Cristobal Mine situation.