[Daily Trade Alert note: The Market Vectors Gold Miners ETF (AMEX: GDX) is one of our “9 Best Stocks to Own Right Now.”]
Growth Stock Wire readers know it’s a great time to buy gold stocks.
With the gold price high, the big gold producers are bringing home record profits. But for the last year or so, these stocks haven’t gone anywhere. (The S&P 500 has actually outperformed the gold miners index.)
So gold stocks are cheap. Any time we get a dip in share prices, you should be buying. And we’re getting a dip right now…
Over the last 11 days, the big gold miners index is down nearly 9%. That gives us a fantastic spot to get in.
[ad#Google Adsense 336×280-IA]As for how to get in, I like buying individual gold stocks. They offer the most upside. That’s why we own a handful in my S&A Resource Report.
The thing is, I spend days or weeks analyzing each stock before we put it in the portfolio. That’s how I make sure we’re not taking on too much risk. But most investors don’t have that kind of time. If you want a broad, less volatile, less time intensive way to own gold stocks, you can consider an exchange-traded fund (ETF).
There are three big ones to choose from: Market Vectors Gold Miners Fund (GDX), Market Vectors Junior Gold Miners Fund (GDXJ), and Global X Pure Gold Miners Fund (GGGG).
GGGG tracks a diversified index of large gold miners. It’s spread pretty thin, with only 6% of the portfolio in the biggest holding and its top 10 holdings making up 50% of the fund. Sometimes diversification is good. But in this case, it’s not worth it. With GGGG, you’re missing out on exposure to the biggest, best gold producers.
GDXJ holds a basket of “junior” gold miners. These are smaller and riskier companies. They are small because they own a single operating mine or are building new mines. (And its top 10 holdings include a silver miner.) This is definitely not the way to buy the biggest, best gold producers.
That leaves us with GDX, which holds a hefty 41.5% of the fund in the three major gold miners: Barrick Gold, Goldcorp, and Newmont Mining, respectively. I think this is the perfect spot for “armchair” gold investors.
You see, we want to own the best and most efficient mining companies that will benefit from rising gold prices. Those companies are the majors like Barrick Gold, Goldcorp, and Newmont Mining.
The strategy has been paying off. Over the last year, GDX outperformed GDXJ by nearly 20%. GDX also outperformed GGGG by about 10% since GGGG opened last March.
The best way to trade GDX now is to buy shares and limit your downside. An easy spot to set your stop is near the “floor” it’s bounced off several times already.
Take a look…
As you can see from the chart, since the start of the year, the market hasn’t let the price of GDX fall much below $52.50 per share… even in the October market bottom.
Shares are trading at about $57.50 today. So buying here and setting the stop at $52 gives you just 10% downside.
On the upside, if gold stocks finally start reflecting their increased earnings, the potential gains are much larger. And out of the gold-fund universe, GDX is my favorite diversified way to own gold stocks. With our downside limited, this is a no-brainer trade.
Good investing,
Matt Badiali
Further Reading: Gold stocks haven’t performed nearly as well as gold itself, Jeff Clark told Growth Stock Wire readers last month. “But that may be about to change…” He recommended readers buy GDX. Sure enough, shares rallied 18% in the next 13 trading days. Learn how Jeff called it here: The Best Gold Stock Opportunity I’ve Seen in Two Years.
For an outside-the-box way to invest in gold, Steve Sjuggerud checked in with one of his mentors, Van Simmons. “If gold continues higher, these investments could soar hundreds of percent.” Read more here: What My Most Trusted Gold Insider Is Buying.
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Source: Growth Stock Wire