The Best Gold ETFs to Profit From a Rebound in Gold
San Francisco (Oct 10) There are dozens and dozens of gold ETFs on the market, all designed to offer investors an attractive way to profit from the rise, or in some cases the fall, of the price of gold. Some gold ETFs track the price of physical gold either through direct or indirect ownership. Meanwhile, others own the stocks of gold mining companies, which typically rise and fall along with the price of gold. However, as I'll soon show, the best gold ETFs to ensure one actually does profit from a rebound in the gold price are those that own the physical commodity.
The best gold ETFs move in lock-step with gold prices
One of the problems investors face when trying to profit from a rebound in a particular commodity price is that they can be right on their thesis, in this case that gold will go up, but be wrong in their chosen vessel. To visually display that point, take a look at the following chart, which tracks the uber-popular gold ETF SPDR Gold Trust (NYSEMKT:GLD), senior miners ETF Market Vectors Gold Miners ETF (NYSEMKT:GDX), and the price of gold over the past 10 years.
What's worth noting is that while the price of gold is up roughly 65% over the past decade, both ETFs have underperofrmed, though the SPDR Gold Trust has nearly matched that move, up 60% with the slight underperformance caused by fees. On the other hand, the ETF of gold mining stocks, Market Vectors Gold Miners, has vastly underperformed the price of gold. Not only is it down nearly 58% over the past decade, but it also underperformed the price of gold when it moved higher out of the financial crisis, which is shown in the shaded area.
That underperformance of gold miners, resulting from a number of issues within the mining industry, including debt, cost overruns, labor issues, and management missteps, cost investors dearly. That's why the best gold ETFs are those that own gold and gold alone, because the risk of being right on the price movement and wrong on the investment just isn't worth the risk.