As interest in gold continues to rise, investors are faced with the always-lingering question of how to gain access to their favorite precious metal. Some prefer to use products that actually invest in the commodity, while others prefer to make a play on the production side of the asset. Below, we outline two popular ETFs that have a different take on gold, and which one may best fit your investment objectives [for more gold news and analysis subscribe to our free newsletter].
Market Vectors Gold Miners Index ETF (GDX)
The Market Vectors Gold Miners Index ETF (GDX) states in its prospectus that its strategy is to replicate as closely as possible the price and yield performance of the NYSE Arca Gold Miners Index. Launched in 2006, GDX now has investments in over 30 companies involved in the gold mining industry.
When examining this fund’s performance for this previous year, the characteristic that stands out is volatility. Beginning the year trading around, and for a time, above, $55 per share, GDX started off 2012 strong. However, by the end of May, the fund had dropped below $40 per share, remaining under $45 per share until after the start of August. This dip in price was a result of a number of factors, including a decrease in demand for gold, a consequence of the weakened state of the euro in relation to the dollar caused by the ongoing financial crisis in Europe [see also Do You Buy In To The Precious Metals Rally?].
Since then, though, the fund has regained much of its lost momentum. Due in part to the anticipation of and reaction to Ben Bernanke’s QE3 announcement, GDX is currently trading right around $53 per share for YTD growth of 2.0%. This is bit behind the historical record of the fund since its inception, over which period of time GDX has posted growth of 6.4%. Though it has been less stable this year than many investors care to stomach, the Market Vectors Gold Miners Index ETF continues to provide steady growth of between 4-6%.
SPDR Gold Shares Trust (GLD)
The SPDR Gold Shares Trust (GLD), contrary to GDX, states that its objective is to replicate the performance of gold bullion, and alleges that it holds 100% of its assets in physical gold bullion. Beginning the year trading at around $155 per share, it is currently trading just above $171 per share, an increase of 12.4% on the year. Though GLD was not immune to mid-year swoon experienced by precious metals of every variety, its growth was consistent up until and after the lull in May, June and July. And it hasn’t been just this year; the fund has grown by 130% over the past five years alone [see also SPY vs. GLD vs. SLV, How 2012 Has Shaped Up].
Not all investors are thrilled with the fund, however; GLD has been plagued by the accusation that the fund does not actually have the bullion to back its shares as it claims. This is a serious accusation to level against the fund, but regardless of its validity, GLD’s performance both this year and historically is beyond dispute. As the euro continues to recover, it is quite plausible that this positive trend will continue.
Disclosure: No positions at time of writing.