Time to Buy Junior Gold Mining ETFs?

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Although gold prices are still down from a one year look, the yellow metal has been surging back in recent months.

By Zacks Investment Research

Over the past three months the precious metal has risen by about 7% and is now beating out—just barely—broad market returns over the YTD time period, suggesting that gold investing could once again be in focus.

Unsurprisingly, this trend has also carried over in the mining segments of the precious metal world as well with the top gold mining ETFs like GDX and GGGG seeing strong gains in the trailing three month period.

Both are easily beating out the S&P 500 in the time frame, helping to eat into the significant level of underperformance that both had seen against the key benchmark since the start of the year (read The Comprehensive Guide to Gold ETF Investing)

Yet beyond these large cap focused mining ETFs, investors have a few more volatile gold mining ETF options that could also be interesting picks in this environment. That is because both of these choices invest in small cap firms or those that are exploring for—but are not producing—gold and are much more hit-or-miss depending on broad economic conditions.

Generally speaking, these two act even more as leveraged plays on the underlying metal as their large cap focused cousins so they can see extreme levels of volatility in a short period of time. When gold is slumping this can translate into huge losses, but when gold is surging we can see huge gains in these types of gold mining ETFs.

Potentially this could be the situation now in the gold market, particularly since the metal is now on par with stock investments in the YTD period, and worries remain over the fiscal cliff and European plans to deal with their issues.

For these reasons, gold bulls in the short-term may want to consider looking to small caps for exposure if they are seeking a continued bullish trend in the precious metals market as we are closing out the year (read is WITE the Perfect Gold ETF Complement?).

Below, we have highlighted in greater detail two of the top choices that investors have in this slice of the market. While they are somewhat similar, it is important to note that they are by no means going to move in lockstep—nor have we seen them do that over the past year—so one should definitely pay attention to the key differences in the group before choosing one for investment.

Market Vectors Junior Gold Miners ETF (GDXJ)

This popular ETF looks to focus on the small and mid cap firms in the gold and silver mining industry. This is done by tracking as closely as possible the price and yield performance of the Market Vectors Junior Gold Miners Index.

This results in a fund that charges investors 54 basis points a year, but one that has incredible volume of over 3.5 million shares a day. In total, the ETF has just over 80 companies with 33% going to mid caps and the rest to small, giving the fund a weighted average market cap of just $850 million.

In terms of holdings, Canada dominates at 60% of total assets followed by a hefty Australia weight of just under 28%. It should also be noted that the fund does a great job of spreading out assets with no one firm accounting for more than 4% of assets (read Shine and Protect Your Portfolio with Gold ETFs).

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