The Case for Gold Miner ETFs

ETF Trends

Gold investors have two choices when they want exposure to the metal – either the physical bullion or gold miners. Exchange traded funds that focus in on the miners have underperformed relative to the precious metal, but both are favored for the next few years by S&P Capital IQ.

“First, given that the Federal Reserve is committed to keeping short-term interest rates at near zero through 2014, we see no opportunity cost for buying and holding gold anytime soon,” S&P said in the note. [ETF Chart of the Day: Gold Miners]

The ongoing volatility in global currencies and heightened concerns over the European debt crisis has increased the allure of gold as a safe haven asset. It has been speculated that countries such as China, that hold a large portion of foreign exchange reserves in U.S. dollars will diversify into the precious metal.

Other reasons that gold will remain on a steady uptrend include the fact that global mine production is stagnant, with production levels to remain low for the next few years. Old mines are getting depleted and there are not replacement mines to lift output, reports Leo Larkin for S&P Capital IQ. [Comparing the Largest Gold Miner ETFs]

After the elevated price of gold that hit in February of 2012, the price of gold has moved sideways. The sideways movement will continue most of the year, and possibly end 2012 at $1,900 per ounce, reports Larkin.

ETFs that capitalize on gold miners include the  Market Vectors Gold Miners (GDX) , with $8.1 billion in assets. The fund has dropped about 15% this year despite the run up in gold prices and physically-backed ETFs. Investors should note that an investment in gold miners is an equity play, which invests in the companies that mine, drill and explore for gold.  [Three Gold Miner ETF Options]

The small-cap miners  Market Vectors Junior Gold Miners ETF (GDXJ)  has lost about 20%. The fund has $2.3 billion in assets under management.

Market Vectors Gold Miners

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Tisha Guerrero contributed to this article. 

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