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Education Series: Single-Stock ETPs

Buy Gold or Gold Miners? Well, It Depends

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

Websim is the retail division of Intermonte, the primary intermediary of the Italian stock exchange for institutional investors. Leverage Shares often features in its speculative analysis based on macros/fundamentals. However, the information is published in Italian. To provide better information for our non-Italian investors, we bring to you a quick translation of the analysis they present to Italian retail investors. To ensure rapid delivery, text in the charts will not be translated. The views expressed here are of Websim. Leverage Shares in no way endorses these views. If you are unsure about the suitability of an investment, please seek financial advice. View the original at

Many analysts hold the view that hints of possible softening of the Federal Reserve’s stance on rate hikes to control runaway inflation would possibly be softened mean the markets should recover lost ground. This isn’t necessarily true from an empirical perspective: over the last fifty years, most “pivots” on rate hike regimes have been followed by a strong bear market.

This should be a cautionary note for those who believe that there is a simple relationship between equity markets and rates. In reality, the markets reflect the economy, which is increasingly localized as opposed to globalized. One traditional means of hedging and even profiting during market downturns has been, of course, gold. 

Lets consider three investment avenues for gold:

  • The VanEck Gold Miners ETF (GDX), which tracks the NYSE Arca Gold Miners Index (GDMNTR). The index tracks the overall performance of global gold mining companies.

  • The SPDR Gold Trust (GLD), which denotes a fixed amount of gold bullion. It is one of the top ten largest holders of gold in the world.

  • The Gold Feb 23 futures contract (GC-F)

Knowing the Difference

While gold does find usage in the making of electronics – where its non-corrosiveness makes it very desirable – it has historically been used as a “storehouse of value”. Overall, it has been estimated that most gold available in the world is predominantly used as jewellery.

However, in recent times, the total mix has been shifting towards bullion not held in central banks as well as ETFs such as GLD. Given this shift, gold mining companies receive quite a bit of attention as well. 

It has been variously estimated that mining provides 90% of the world’s supply; the rest is made up for with recycling. However, mining and mine production does not respond quickly to prices. It often takes decades to move from discovery to production. Exploration – wherein gold is found – can take up to 10 years and development – wherein the location of estimated deposits are dug into and made ready for production – can take up to 5 years while mine operations can last as long as 30 years. All of these activities are subject to the price trajectories of gold; if gold is deemed too cheap, a location may be deemed uneconomical to mine. 

This intuitively implies that the price performance of gold mining stocks aren’t necessarily in trend with the price of gold. 

Instrument Trends in 2022

From the start of the year till the end of November, while the three instruments show pretty strong correlation, it isn’t perfect. 

The difference between Gold Miners and Gold itself can be understood thus: given that GDX represents a basket of companies while GLD is a commodity, there is bound to be a difference. The companies involved produce the gold but by no means is it a perfectly predictable process. Furthermore, given that U.S.-listed equities have in general been overvalued over the past several years and U.S.-listed companies are quite significantly represented in GDX, the price trajectory has been under some downward pressure earlier this year. 

Now, between GLD and GC-F, the difference in performance lies in instrument type. When gold futures are purchased or sold, the price is determined by market anticipations on what demand would be upon expiry. In short, its a forward-looking estimate. On the other hand, the demand for GLD itself is based on information as it emerges. In other words, it’s a spot estimate. 

Regardless of instrument choice, all three instruments have been showing bullish performance in recent times, with GDX showing strong recovery in the Year-to-Date (YTD). 

In Conclusion

For tactical purchases based on events as they break, it intuitively makes sense to strategize around either GDX or GLD. While the economic outlook continues to be fluid, GC-F might look overpriced or underpriced but it functions very well as a benchmark for prices in the other two instruments in the forward-looking outlook. Leveraged trading of either GDX or GLD is bound to pick up as capital continues to exit equity markets and look for safe havens.

Exchange-Traded Products (ETPs) offer substantial potential to gain magnified exposure with potential losses limited to only the invested amount and no further. Learn more about Exchange Traded Products providing exposure on either the upside or the downside to the Gold Trust as well as those providing the same on either the upside or the downside to the Gold Miners ETF.

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

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Sandeep Rao

Research

Sandeep joined Leverage Shares in September 2020. He leads research on existing and new product lines, asset classes, and strategies, with special emphasis on analysis of recent events and developments.

Sandeep has longstanding experience with financial markets. Starting with a Chicago-based hedge fund as a financial engineer, his career has spanned a variety of domains and organizations over a course of 8 years – from Barclays Capital’s Prime Services Division to (most recently) Nasdaq’s Index Research Team.

Sandeep holds an M.S. in Finance as well as an MBA from Illinois Institute of Technology Chicago.

Violeta Todorova

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Violeta joined Leverage Shares in September 2022. She is responsible for conducting technical analysis, macro and equity research, providing valuable insights to help shape investment strategies for clients.

Prior to joining LS, Violeta worked at several high-profile investment firms in Australia, such as Tollhurst and Morgans Financial where she spent the past 12 years of her career.

Violeta is a certified market technician from the Australian Technical Analysts Association and holds a Post Graduate Diploma of Applied Finance and Investment from Kaplan Professional (FINSIA), Australia, where she was a lecturer for a number of years.

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Julian joined Leverage Shares in 2018 as part of the company’s premier expansion in Eastern Europe. He is responsible for web content and raising brand awareness.

Julian has been academically involved with economics, psychology, sociology, European politics & linguistics. He has experience in business development and marketing through business ventures of his own.

For Julian, Leverage Shares is an innovator in the field of finance & fintech, and he always looks forward with excitement to share the next big news with investors in the UK & Europe.

Oktay Kavrak

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Oktay joined Leverage Shares in late 2019. He is responsible for driving business growth by maintaining key relationships and developing sales activity across English-speaking markets.

He joined LS from UniCredit, where he was a corporate relationship manager for multinationals. His previous experience is in corporate finance and fund administration at firms like IBM Bulgaria and DeGiro / FundShare.

Oktay holds a BA in Finance & Accounting and a post-graduate certificate in Entrepreneurship from Babson College. He is also a CFA charterholder.

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