Wednesday’s ETF To Watch: Gold Miners Fund (GDX)

by on March 2, 2011 | ETFs Mentioned:

Yesterday brought the beginning of March, and as far as stocks are concerned, the month certainly came in as a lion, but for investment sake, let’s hope it goes out like a lamb. All major indexes were down with the S&P 500 and the Nasdaq both losing approximately 1.6% on the day. A rough trading session came as no surprise as Libyan protests continue to dominate the press and the union demonstrations in Wisconsin, which have occupied the state’s capital building for several days, have now spread to Ohio and look to shake a number of other states in the region as well. A volatile trading day led to major increases in oil, the VIX, and perhaps most notably, gold [see also Precious Metal ETFs: Physical vs. Equity Exposure].

Gold is hovering near its historic high, as yesterday the shiny commodity eclipsed the $1,430 per ounce mark. This major surge comes after alleged reports of protests in Iran leading to many pro-reform leaders being incarcerated for their demonstrations, as well as similar situations popping up in Oman as well as Saudi Arabia where a pro-reform cleric was arrested sparking fears of protest in the oil rich nation as well. Worries over a Libyan-style situation spreading to Iran or Saudi Arabia and crushing their respective oil outputs has caused investors to head for the hills and find a safe investment for the time being [see also Inflation-Fighting ETFs Back In Focus].

Historically, gold has long been a safe-haven investment, as it cannot be printed and it has been a store of wealth for thousands of years. Many also use gold to hedge against inflation, currency devaluation, or simply to keep a stable investment in a volatile market. Late 2010 saw the precious metal make a historic run, breaking the elusive $1,400 per ounce mark, only to dip back closer to $1,300/oz. However, tensions over the past month fueled by the protests which have spread like wildfire over Northern Africa and the Middle East, sent gold back up, putting equities on thin ice [see also Battle For ETF Market Share: Who’s Gaining Ground, Who’s Falling Behind].

Due to the continued protests, and yet another historic gold run, today’s ETF to watch will be the Market Vectors TR Gold Miners (GDX). This ETF tracks an index that provides exposure to publicly traded companies worldwide involved primarily in the mining for gold, representing a diversified blend of small-, mid- and large- capitalization stocks. As a mining fund, the majority GDX’s assets are invested overseas, with countries like South Africa and Peru receiving substantial weightings. Though gold has been surging as of late, this fund is still down by about one percent on the year, a trend that may be broken if the protests persist. With an average daily trading volume of nearly 10 million, look for GDX to be a big mover tomorrow as more news springs out of the Middle East and the Gulf States. The fund gained 1.7% in Tuesday trading on above average volume, if tensions remain high in Saudi Arabia look for GDX, which is often considered a leveraged play on gold, to continue its march higher and recapture its peak that it hit in early December and possibly continue its surge as well.

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Disclosure: Photo courtesy of Dennis Garrett. No positions at time of writing.