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

Gold At New High In US

Gold broke all time record in $US today. It is a confirmation that the bull market is alive.

Some people could argue that this may be a double top. That is definitely possible. However, if gold does get up to more than $1100, then I think that argument is a little weak. Furthermore, based on the recent consolidation of gold prices, it just doesn’t look like it’s a double top formation. A double top usually falls sharply afterwards. Gold consolidation has been quite flat, indicating its continual strength.

In fact, gold has indeed climbed a giant wall of worry. Majority of gold investors have not put in more money because of fear in impending stock market correction.

I have no way to know whether the gold mining index HUI is making a small double top right here. It is certainly possible. But I try not to predict the short term moves too much. After all, it’s not easy to out-smart the markets on a daily basis.

I understand that the great trader Bill at BillCara.com has sold partially out from stock markets & gold/mining. I also know that JC, one of the very few successful traders amid 2008 stock market crash at www.simplyprofits.org have gone out of markets for quite a while. I understand that the person who called the credit market crash in 2007, Bob Hoye (normally at HoweStreet.com), has turned bearish on general stock markets, and especially on silver, for a number of months. But I kept thinking to myself that in this wave 3 up, most people/traders will be missing the bull ride. Ha, ha, myself included!!

The next big milestone if it comes will be a new high in international currency, first in Euro, and then in commodity currencies. I continue to believe that this new high will NOT come until the next big fall in the financial sector happens, which may be next March/April. From that regard, at least, for the international investors, they probably still have time to digest the current volatility in gold market. However, I wonder whether there may be some fireworks first when priced in $US before the year ends. Yeah, I know $US is supposed to rally right here right now. But is this another episode of “markets stay irrationally longer than one can stay solvent”?

Next Friday is an option expiration week. Maybe there is a chance of pullback. Maybe BillCara & Bob Hoye is right. I dare not to go in nor go out of this market. Brave trader I’m not. Patient investor I am, and I need to take actions accordingly.

Best luck,

Frugal at 1stMillionAt33.com

A Rally Into Fantasy Land

As I have stated, people needs to take advantage of this rally to sell out of their stocks. This is the “prayer answered” for those who have suffered big losses.

What’s ahead? My own opinion is that the rally is soon going to stall a little at about here. Many people are looking for selling out at Moving Average of S&P500 reaching 950. I’m not going to count on that. The market will always do the least unexpected. So either it stops just short of 950 at maybe 935, or it surprises every bear out there with a much stronger recovery to 1000 or above. I’m a bear, and I would definitely like to be pleasantly surprised.

The energy stocks are the stronger ones that have staying power through this counter rally. I have not sold out my energy stocks. In fact, I only just started to lighten up a little. There is a not-small possibility that they will stay strong until early July. I will continue to watch them very closely for a clean sell-out in the coming days/months.

Looking at upturns in gold stocks in the last few days, it appears that the last sector has waked up to the bullish train. And that is a bad omen. Once the last bullish guy joins, you know what happens next. Precious metal mining stocks will be subjected to stock market fluctuations. I think there is still room to run in both PM and general stock markets. The initial reaction of a stock market fall for PM stocks will be down for sure. I expect them to hold support this time, although the magnitude of fall will always be more exaggerated than general stocks due to its higher volatility.

I have pinned that stock markets with a high likelihood will not be able to go beyond August/September timeframe. In my opinion, it’s more likely that it will drop starting in mid-July with a bigger magnitude. Nevertheless, towards the year end in November/December, another counter-rally will be attempted. I hold the opinions that the second counter-rally will reach a height that is going to be at least 5% lower than the current or July height. I will not wait for that to sell, nor I won’t be shorting into Nov/December.

Let’s enjoy the temporarily sunshine for now. Best luck trading.

Is Gold In A Bubble?

One of my colleagues have repeatedly asked me this question. I am quite clearly on the answer, “NO”.

How many people do you know who actually hold GLD? How many people do you know actually buying gold? How many people do you know actually buy mining shares? The answer all too often is close to zero.

A bubble is ALWAYS easily recognizable (unlike the shameful Greenspan who claims that it can only be seen hindsight). The participation rate will be quite high that you are bound to hear about it in news REPEATEDLY, and that it will be always the “topic of the party”. A bubble is a collective ignorance or rather frenzy, and there is always a disconnect to reality.

In fact, gold is looking extremely good technically, forming the bottom of the cup in a cup & handle chart. The next rising up is usually pretty substantial.

At $1000 just a month ago, the gold bull is faithfully shaking off the Indian and Arabic participants. However, the Asian will be piling in due to competitive devaluations of their own currency. Asians have always recognized both gold/silver as the money. They will never hesitate to protect their own wealth in the real money.

So are you onboard?

Unfortunately, for the smaller investors, physical gold is pretty much out of reach. With a minimum order of 20 ounces, that is about $20000. The only current buyers are from institutions and people who have money to put away. These are smart investors buying in, while the middle class is selling out their last portion of gold jewelry for cash. Who will be right?

How Far Will Things Fall

I really should tip my hat to Hussman for his insights. He has been exceedingly successful in navigating the bear/bull markets.

I truly think that the coming 2 months will not be pretty at all for many markets, and unfortunately gold included.

First thing first. Judging from the crude oil chart, it appears that we are probably near the end of wave 3. Of course, calling the top is the hardest thing, especially in a parabolic rise. But wave 3 should be coming to the end. What that means is that probably one should get out of oil stocks. Assuming a sizable correction from this point, I think it’s possible for oil to go from $135.09 down to $86.33, a similar magnitude from $79.86 to $51.03 last time.

It’s quite counter-intuitive that gold is leading the charts of oil, no matter how I look at the charts. I always think that the biggest driving factor for inflation is the rise in the crude oil price. Maybe gold does foretell the future inflation rates. Anyway assuming that is indeed the case, gold may or may not have bottomed already. At the previous oil bottom, the gold/oil ratio was at the peak of 11.94. Gold bottomed at a ratio of 7.72, while the next intermediate bottom was at the ratio of about 9.5. Using the ratio of 7.72 or 9.5, I get a gold price of $666.46 or $820.14. If I try to be more conservative on gold by using a ratio of 9 instead of 9.5, I get a gold price of $776.97.

Now using the ratio charts of Gold/HUI, the extreme values have been at 2.355. Anything above 2.2 is pretty high. Using the gold prices of $820.14 and a ratio of 2.2, I get a HUI at 372.79. If I go more extreme by using $777 gold price and a ratio of 2.40, I get a HUI of 323.75. I don’t believe that it’s possible for HUI to go that low, since HUI always leads gold price plus lower oil prices are good for miners. So if I take the middle road, using a gold price of $835 and a ratio of 2.4 (HUI leads gold), then I get a HUI of 347.92.

While I believe that HUI has seen the bottom already at 384.53, the market can certainly prove me wrong. Whether going down to $372.79 or $347.92, it’s going to be a quite a big ride down. With the stock markets getting quite flaky, I must reckon such possibilities.

While I believe that the Elliot wave count for HUI is probably at 1 of 3 or 2 of 3 in progress, it’s not clear whether gold prices are at the same count. I think the count for gold is probably at the same count of HUI, or 1 count behind (just started intermediate wave 2 down rather than beginning of wave 3). Presented with the evidences & numbers, I think the most probable count for HUI is in 2 of 3, assuming that gold price will correct further. Obviously wave 2 can go down a lot in respect to wave 1. Therefore $347.92 or lower is definitely a possibility.

With that said, the general markets probably will re-visit the lows if not breaking lower. Bond yields should fall, and anyone who wants to refinance should take this “last” chance again. Since the next wave in gold is probably going up or UP, bond yields which hate inflation (a high gold price) will certainly not be low. Most likely after the next wave down, the global markets will “turn the corner” and US dollar may fall precipitiously to jumpstart an extended wave 5 in HUI and maybe wave 3 or 5 in gold.

My crystal ball is cloudy at best. But it’s showing big storms ahead. I hate my own analysis, since I’m emotionally attached to my current investment. But markets will always have the final says.

Gold Breaking Out

On Oct. 25, I noted the positive price action in gold which consisted of a sharp 1-day sell-off and a quick recovery. At the time, gold was trading in the low $590′s and the HUI was at 316. Since then gold climbed to $620′s and HUI has consolidated in the high 320′s where several retracement levels congregated.

We are seeing similar actions today, where gold is up ~$16 now after easing over $8 yesterday. Concurrently, HUI has gained over 3% to 338+. The minor drawback I can see is that the PM stocks are in overbought territory. A prudent plan for gaining PM exposure anew may be to take some position now and the rest upon a pull back to the low 330′s.

One way to capture the upside in the miners while circumventing individual company risk is through GDX, the Market Vectors Gold Miner ETF. Over its short life, it has a very high correlation to the HUI index.

PMs are extremely volatile, so please be sure to do you due dilligence and adhere to a strict allocation and stop-loss discipline.