gold mining etfs

[ALBERT*]

I see that the ISE has such a etf which consists of a basket of the Top companies in gold mining sector that generate at least 50% income from gold mines.
In general would such an etf be a good way to invest in gold ?What are the pros and cons of investing in a mining fund vis a vis a fund directly tracking gold price? Can an investor expect to see a disparity between gold prices movement and mining fund price movements?

 

[Marc]

HI Albert,

This is a really good question and one I looked into for a client recently using data for the Market Vectors ETF since 1998.

The analysis can be found [broken link removed]

The conclusion reached is that mining stocks are a poor proxy for the spot price of gold and do not represent an "asset class" or specifically a section of the equity market with its own risk/return characteristics.

This conclusion is further supported by [broken link removed]which looks at US Mining companies since 1926.

Again,mining stocks consistently underperform the S&P 500 since 1926 with just a brief period of outperformance in the late 1970s early 80s when the spot price of gold and other commodities shot up.

Overall, there are better ways to buy gold -such as actually buying gold and better ways of taking positions in equities.

Regards

Marc