Review On The New Gold ETF GDXJ GDX

GDXJ was debut this Wednesday. Both GDX and GDXJ (the junior companies) are offered by Van Eck.

Here are the links to the company site for GDX and GDXJ. The complete weighting of the components are listed below:

Fund Holdings of GDX as of 2009/11/12

 

Number

 

Holding

 

Ticker

 

Shares

 

Market Value

 

% of net assets

 

1

 

Barrick Gold Corp

 

ABX

 

18,718,639

 

$783,749,414.93

 

14.49%

 

2

 

Goldcorp Inc

 

GG

 

14,249,524

 

$614,011,989.16

 

11.36%

 

3

 

Newmont Mining Corp

 

NEM

 

9,475,288

 

$470,353,296.32

 

8.70%

 

4

 

AngloGold Ashanti Ltd

 

AU

 

6,999,199

 

$304,045,204.56

 

5.62%

 

5

 

Lihir Gold Ltd

 

LIHR

 

8,569,682

 

$265,317,354.72

 

4.93%

 

6

 

Cia de Minas Buenaventura SA

 

BVN

 

7,114,374

 

$263,587,556.70

 

4.87%

 

7

 

Yamana Gold Inc

 

AUY

 

21,130,631

 

$259,484,148.68

 

4.80%

 

8

 

Randgold Resources Ltd

 

GOLD US

 

3,203,698

 

$255,110,471.74

 

4.72%

 

9

 

Kinross Gold Corp

 

KGC

 

13,436,964

 

$252,883,662.48

 

4.68%

 

10

 

IAMGOLD Corp

 

IAG

 

14,744,197

 

$251,536,000.82

 

4.65%

 

11

 

Gold Fields Ltd

 

GFI

 

16,291,819

 

$229,714,647.90

 

4.25%

 

12

 

Agnico-Eagle Mines Ltd

 

AEM US

 

3,748,931

 

$223,736,202.08

 

4.14%

 

13

 

Eldorado Gold Corp

 

EGO

 

16,025,187

 

$207,205,667.91

 

3.83%

 

14

 

Silver Wheaton Corp

 

SLW

 

13,420,202

 

$199,692,605.76

 

3.69%

 

15

 

Harmony Gold Mining Co Ltd

 

HMY

 

17,100,638

 

$175,452,545.88

 

3.24%

 

16

 

PAN American Silver Corp

 

PAAS

 

3,501,327

 

$82,036,091.61

 

1.52%

 

17

 

Royal Gold Inc

 

RGLD

 

1,636,283

 

$81,715,973.02

 

1.51%

 

18

 

Coeur d’Alene Mines Corp.

 

CDE US

 

3,026,689

 

$63,378,867.66

 

1.17%

 

19

 

New Gold Inc

 

NGD

 

15,532,015

 

$59,176,977.15

 

1.09%

 

20

 

Silver Standard Resources Inc

 

SSRI US

 

2,878,399

 

$56,071,212.52

 

1.04%

 

21

 

Hecla Mining Co

 

HL US

 

9,493,058

 

$50,692,929.72

 

0.94%

 

22

 

Gammon Gold Inc

 

GRS US

 

4,993,219

 

$49,233,139.34

 

0.91%

 

23

 

Seabridge Gold Inc

 

SA

 

1,505,674

 

$35,142,431.16

 

0.65%

 

24

 

Golden Star Resources Ltd

 

GSS US

 

9,492,472

 

$32,369,329.52

 

0.60%

 

25

 

Aurizon Mines Ltd

 

AZK

 

6,375,413

 

$30,219,457.62

 

0.56%

 

26

 

Northgate Minerals Corp

 

NXG US

 

10,274,632

 

$30,207,418.08

 

0.56%

 

27

 

Minefinders Corp

 

MFN US

 

2,376,917

 

$23,674,093.32

 

0.44%

 

28

 

Great Basin Gold Ltd

 

GBG

 

13,386,929

 

$20,883,609.24

 

0.39%

 

29

 

Nevsun Resources Ltd

 

NSU

 

5,149,665

 

$14,882,531.85

 

0.28%

 

30

 

Tanzanian Royalty Exploration Corp

 

TRE

 

3,603,954

 

$12,469,680.84

 

0.23%

 

31

 

Cash

 

6,655,296

 

$6,655,380.14

 

0.12%

 

32

 

Vista Gold Corp

 

VGZ CN

 

1,705,026

 

$4,569,469.68

 

0.08%

 

Fund Holdings of GDXJ as of 2009/11/12

 

Number

 

Holding

 

Ticker

 

Shares

 

Market Value

 

% of net assets

 

1

 

Coeur d’Alene Mines Corp.

 

CDE US

 

56,910

 

$1,191,695.40

 

6.42%

 

2

 

Silver Standard Resources Inc

 

SSRI US

 

51,510

 

$1,003,414.80

 

5.40%

 

3

 

New Gold Inc

 

NGD CN

 

251,160

 

$972,587.72

 

5.24%

 

4

 

Hecla Mining Co

 

HL US

 

177,285

 

$946,701.90

 

5.10%

 

5

 

Gammon Gold Inc

 

GRS US

 

89,085

 

$878,378.10

 

4.73%

 

6

 

Alamos Gold Inc

 

AGI CN

 

80,610

 

$808,060.57

 

4.35%

 

7

 

Silvercorp Metals Inc

 

SVM CN

 

117,615

 

$712,342.27

 

3.84%

 

8

 

Semafo Inc

 

SMF CN

 

187,800

 

$707,530.16

 

3.81%

 

9

 

European Goldfields Ltd

 

EGU CN

 

95,100

 

$648,543.09

 

3.49%

 

10

 

Golden Star Resources Ltd

 

GSS US

 

175,590

 

$598,761.90

 

3.22%

 

11

 

Northgate Minerals Corp

 

NXG US

 

192,960

 

$567,302.40

 

3.06%

 

12

 

Kingsgate Consolidated Ltd

 

KCN AU

 

65,010

 

$548,420.73

 

2.95%

 

13

 

Jaguar Mining Inc

 

JAG CN

 

52,200

 

$545,176.21

 

2.94%

 

14

 

San Gold Corp

 

SGR CN

 

185,925

 

$530,226.29

 

2.86%

 

15

 

Aurizon Mines Ltd

 

ARZ CN

 

112,455

 

$528,783.59

 

2.85%

 

16

 

Novagold Resources Inc

 

NG US

 

97,935

 

$509,262.00

 

2.74%

 

17

 

Andean Resources Ltd

 

AND CN

 

229,485

 

$503,424.58

 

2.71%

 

18

 

Gabriel Resources Ltd

 

GBU CN

 

147,360

 

$444,139.06

 

2.39%

 

19

 

Minefinders Corp

 

MFN US

 

43,560

 

$433,857.60

 

2.34%

 

20

 

Allied Nevada Gold Corp

 

ANV US

 

38,055

 

$428,499.30

 

2.31%

 

21

 

Ventana Gold Corp

 

VEN CN

 

38,040

 

$420,147.07

 

2.26%

 

22

 

Rubicon Minerals Corp

 

RMX CN

 

99,240

 

$411,744.96

 

2.22%

 

23

 

Great Basin Gold Ltd

 

GBG CN

 

251,820

 

$393,900.33

 

2.12%

 

24

 

Lake Shore Gold Corp

 

LSG CN

 

92,505

 

$355,567.89

 

1.91%

 

25

 

St Barbara Ltd

 

SBM AU

 

1,032,395

 

$343,436.08

 

1.85%

 

26

 

Kirkland Lake Gold Inc

 

KGI CN

 

38,685

 

$332,075.92

 

1.79%

 

27

 

Avoca Resources Ltd

 

AVO AU

 

194,325

 

$333,011.01

 

1.79%

 

28

 

Fronteer Development Group Inc

 

FRG US

 

79,110

 

$328,306.50

 

1.77%

 

29

 

Romarco Minerals Inc

 

R CN

 

245,175

 

$327,383.28

 

1.76%

 

30

 

Medusa Mining Ltd

 

MML AU

 

77,745

 

$284,326.89

 

1.53%

 

31

 

Detour Gold Corp

 

DGC CN

 

20,685

 

$271,275.45

 

1.46%

 

32

 

Gold Wheaton Gold Corp

 

GLW CN

 

759,960

 

$217,452.43

 

1.17%

 

33

 

Dominion Mining Ltd

 

DOM AU

 

55,260

 

$202,474.00

 

1.09%

 

34

 

Real Gold Mining Ltd

 

246 HK

 

127,500

 

$194,484.35

 

1.05%

 

35

 

Colossus Minerals Inc

 

CSI CN

 

37,230

 

$187,135.39

 

1.01%

 

36

 

U S Gold Corp

 

UXG US

 

61,875

 

$167,681.25

 

0.90%

 

37

 

Avocet Mining Plc

 

AVM LN

 

97,665

 

$156,218.24

 

0.84%

 

38

 

Lingbao Gold Co Ltd-H

 

3330 HK

 

210,000

 

$81,009.51

 

0.44%

 

GDX is a tracking ETF to GDM index, a mining index determined by Nyse. The component weighting cannot be determined by Van Eck. Unfortunately, the top holding ABX at 14.5% is probably one of the worst choice. ABX recently announced to dehedge its gold forward sale, which was costing ABX some 4 billion dollars. ABX is also rumored to be the accomplice of gold suppression scheme together with JPM & Fed. The other components in GDX that I don’t like are AU at 5.62%, GFI at 4.25%, HMY at 3.24%, all are deriving 100% or significant gold productions in Africa. As the gold prices zoom upward, mining gold in an impoverished (relatively speaking) continent will tend to be problematic. I expect more labor and theft and political problems. Also gold production from Africa is declining as a whole. With the exception of GFI, which has expanded its production to other continents, the other two companies are definitely not my preferred choice (especially HMY). GFI is probably the “cheapest” company among major gold producers that one can buy, since its mine life is still quite long. HMY may have the highest leverage to gold price, due to its very high cost basis. At later stages of gold bull market, HMY could easily come back with a vengeance despite the terrible management. Although one may consider shorting out those components when owning GDX, I hesitate to do that. The other company that derive its production from Africa is RangGold (GOLD) at 4.72%. This has been one of the company that has baffled me, easily outperforming all other components, without me owning it. Definitely one should not short this component out.

Onto the new GDXJ, top components (CDE, SSRI, HL, SVM) are taken by all silver mining companies instead of gold mining companies. That’s 21% of the GDXJ. My ongoing concern about investing in silver companies is that they will couple to the general stock market a lot more than gold mining companies (at least initially). In a deflation, gold/silver ratio will zoom upward, relatively depressing the price of silver. I would have hoped to have less silver components. By the way, junior companies or small-cap stocks also tend to get depressed more in a downwave. Regardless, CDE and HL (and MFN) don’t seem to have good management in shareholders’ interests, raising big amount of capital at the recent zenith of 2008/2009, diluting a big percentage of their stockholders. I suspect that the deals were hammered out with hedge funds in the Wallstreet who have shorted all these companies in the backroom. With a big short ratio, it was simply not possible to cover those short position via open market purchases without driving up the stock prices. And what is the chance of having so many companies silmultaneously raising capital all the the absolute zenith of the stock market?

Most of the rest of the GDXJ components beyond top ten are not familiar to me. And that is the beauty of investing in an ETF, not needing to know every individual company. Assuming that gold bull market continues, GDXJ will eventually outperform GDX, with much higher volatility. I expect the rallies in both will be kind of in stages, with GDX the big cap leading the way.

Both gold & mining companies are short-term overbought, and had a tremendous recovery since 2008 crash. Based on Elliot wave reading, I’m fairly certain that we are looking at major wave 3. It is hard to tell whether wave 2 of 3 has happened or not. Regardless, if you have the nerves to buy and the stomach to ride out the tremendous volatility (20% to 50% up and down probably for more than 4 times per year), I think the reward may be good.

Granted, I’m still holding back due to my expectation of a significant general stock market correction in Q1/Q2 next year. But no one can predict the stock market with certainty. The best thing to do is to pick and weigh each of your portfolio position carefully, and stand firmly to ride out the combined volatility.

Frugal at 1stMillionAt33.com