If you agree with me that gold is poised to appreciate, then you might be looking today for the best way to invest in your view. When seeking to leverage your bet on gold via investment in gold miners, I believe the best bet is through an ETF rather than individual bets on specific miner shares. The VanEck Vectors Gold Miners ETF (NYSEARCA:GDX) is a security I have used in the past for such investment.
The price of gold is surging now on geopolitical concerns, namely due to the recent U.S. bombardment of Syria and rumors of more to come. The response of Russia and Iran was a strongly worded statement promising engagement of U.S. forces if they return, and that seems to be something that is highly likely for this new administration with a fresh perspective on how to handle global affairs.
That is not to mention the escalating tension around the Korean Peninsula. So, I have been pointing to trouble for stocks as a result, and because of Syria and other geopolitical tensions in Korea and also the Aegean, I've pushed for gold holding via the SPDR Gold Trust (NYSEARCA:GLD) as well.
For investors who agree with my perspective, and for those interested in leveraging bets in a manner less costly than through the levered ETFs like the Direxion Daily Gold Miners Index Bull 3X Shares ETF (NYSEARCA:NUGT), you can do so through investment in gold miners.
The top lines of gold miners' income statements are directly tied to the price of gold, and especially so for those companies with fewer hedges against such risk. These companies tend to be risky investments because of the cost of exploration and production and the volatility of gold prices. Many are burdened by debt as well and can run into trouble in a sustained severe gold price downturn.
However, there is a way you can hedge against these specific company risks. You can do so through investment in gold miner ETFs like the VanEck Vectors Gold Miners ETF, the VanEck Vectors Junior Gold Miners (NYSEARCA:GDXJ), the Sprott Gold Miners (NYSEARCA:SGDM), the iShares MSCI Global Gold Miners (NYSEARCA:RING), Sprott Junior Gold Miners (NYSEARCA:SGDJ), etc.
I often use GDX because of its liquidity and its holdings. Junior gold miner shares are riskier than the larger firms for obvious reasons. GDX includes in its top ten holdings the shares of Barrick Gold (NYSE:ABX), Newmont Mining (NYSE:NEM), Newcrest Mining Ltd. ADR (OTCPK:NCMGY), Newcrest Mining Ltd. (OTCPK:NCMGF), Goldcorp (NYSE:GG), Franco-Nevada (NYSE:FNV), Agnico Eagle Mines (NYSE:AEM), Silver Wheaton (SLW), Randgold Resources (NASDAQ:GOLD) and AngloGold Ashanti (NYSE:AU). These are some of the largest gold and silver miners, and the full list of holdings also spreads risk globally.
GDX shares were up 2.9% as I scribbled here on Tuesday morning, but were relatively unchanged for the last year. Given escalating geopolitical risk now, and the high relative value of the dollar (far to fall if geopolitical risks materialize), gold could surge significantly. If you believe so and would like to leverage your bet on gold without the high cost of holding levered bets, you can do so through gold miner shares. And you can spread that risk via holding the liquid ETF, the VanEck Vectors Gold Miners ETF.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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