Gold Mining ETFs – Better Than Gold?

A gold mining ETF is different from purchasing a gold ETF for your portfolio and has different risks and rewards associated with them. As the name suggests gold mining ETFs consist of gold stocks, the mining companies, the producers of gold, where a gold ETF is based on the metal itself. General thinking is that exposure to gold stocks, at least in the early stages of a gold bull run, will lead to better returns by giving an investor more leverage to the price of gold. However, as always, with more leverage comes more risk, company specific examples of problems are mines flooding, depletion of reserves, or production costs getting out of hand. An industry wide problem could also unexpectedly spring up, say a mining tax for instance.

But if you are convinced the gold miners are the way to play gold, whether going long or playing the bear and shorting, here are the gold mining ETFs to ponder:

The oldest gold mining ETF is the Market Vectors Gold Miners ETF – ticker symbol GDX. This ETF attempts to match the results of the NYSE Arca Gold Miners Index. The fund contains a blend of small, mid sized, and large gold mining stocks from all around the globe.

Another interesting ETF is the Junior Miners ETF – ticker symbol GDXJ. This fund attempts to match the performance of the Market Vectors Junior Gold Miners Index, is managed by the same company as GDX, Van Eck Funds, but has a different focus – medium and small caps that meet the following criteria.  One half of the revenues of the companies in this fund must come from gold and/or silver mining, the companies must hold real property with the potential to make at least one half of their revenue from gold or silver when fully developed, or mainly invest in gold or silver.

The last gold mining ETF we’re highlighting in this article is the PowerShares Global Gold & Precious Metals Portfolio which is based on the NASDAQ OMX Global Gold and Precious Metals Index. The Index was made “to measure the overall performance of globally traded securities of the largest and most liquid companies involved in gold and other precious metals mining-related activities.”

So now that you know what gold mining ETFs are available on exchanges in the U.S. are they really better than gold itself? Well…that depends on your view of the future, the risks you find acceptable, and the amount of effort you are willing to but into your trading and investing.