Gold (GCZ25) is a timeless asset, far predating the stock market. The New York Stock Exchange and various exchange-traded funds (ETFs) were not mentioned in ancient texts; gold was.
Gold stands out as an investment, and its current surge has captured the attention of even the most casual observers of the financial markets. This awareness may stem from individuals shopping for gold jewelry or encountering the many advertisements promoting gold.
In this discussion, we will focus on public markets, specifically highlighting a trio of ETFs that provide insight into gold’s future potential.
At present, gold is experiencing a historic upward trend, as illustrated by the sharp rise of the SPDR Gold ETF (GLD). For comparative analysis, I have also included the Van Eck Gold Miners ETF (GDX), which comprises gold stocks instead of the commodity itself, along with the GDXJ, which focuses on smaller gold mining companies.
This analysis reveals the popularity of all three gold ETFs. Notably, GDXJ, being the smallest, manages over $8.5 billion in assets. Furthermore, the data suggests that smaller mining companies have exhibited greater volatility than their larger counterparts, reflecting in a beta of 1.06 for GDXJ compared to 0.77 for GDX.
Historical performance indicates that the increased risk associated with GDXJ has not necessarily equated to significantly higher returns over various time periods. In brief: GDXJ outperformed GDX over the past three years, yet fell short over the last five years, during which gold experienced a downturn that affected GDXJ more severely than GDX or GLD.
This sets the stage for a critical question.
Considering the impressive rise in gold and GLD, is it prudent to take on the extra risk associated with mining stocks? Moreover, if GLD maintains its upward trajectory, will GDX and GDXJ continue to produce superior returns? While forecasting the future is beyond my capacity, I can analyze the situation akin to a horse race by examining the charts to identify potential leaders.
Gold’s sporadic performance over time might appear less erratic in this chart, which indicates a near-vertical trajectory. It seems that GLD has surged dramatically since Labor Day. Although the Percentage Price Oscillator (PPO) at the bottom of the chart appears to be at a high level, it hasn’t shown signs of reversing yet.
