The World's Only Pure Gold ETF

Luke Burgess

Updated July 26, 2011

Don’t think that it’s too late to invest in gold…

It’s not. The gold bull market still has plenty of fuel in the tank.

And there are still several easy ways for well-informed investors to yield serious gains.

There’s no doubt gold bullion prices have already experienced stellar gains over the past several years. Since 2001, the price of physical gold is up some 500% to over $1,600 an ounce.

And while I think it’s unlikely we will see another 500% gain from current bullion prices in the near term, we can find even bigger gains from the right gold mining stocks.

In today’s Wealth Daily, I’ll tell you about one of the purest gold equity assets on the market that may serve as a good guide to finding those stocks.

Gold Fever Spreads

Despite record-breaking prices, investors continue to flee to gold as a hedge against the sovereign debt crisis (and now, new global security fears).

Data from the U.S. Mint continues to show a surge in sales of both gold and silver bullion. Meanwhile, the World Gold Council reports record holdings in gold ETFs. Gold ETFs now have collective holdings of 2,155 tonnes of gold, worth over $100 billion.

Largest Gold Holders Tonnes july 2011 goldclick to enlarge
1. United States 8,134
2. Germany 3,402
3. IMF 2,847
4. Italy 2,452
5. France 2,435
6. ETFs 2,155
7. China 1,054
8. Switzerland 1,040
9. Russia 775
10. Japan 765

The main appeal of both physical gold bullion and ETFs is pure exposure to the price of the underlying metal itself. And the appeal of gold stocks is, of course, the potential for a much higher investment return.

Not to worry, though; you can have the best of both worlds…

In last Friday’s issue of Wealth Daily, I introduced you to a few “pure” silver stocks as a way to best leverage rising silver prices.

You’ll recall that silver is most often mined as a by-product of other metals; gold, however, is a different story.

Unlike silver, gold is quite often the primary revenue-generating product of a mine. So there are many public gold companies on the market that are considered general pure plays.

But if you’re looking for an easy way to get broad exposure to pure gold stocks, Global X Funds has you covered.

The recently introduced Pure Gold Miners ETF (NYSE: GGGG) tracks an index of 30 global mining companies that are leveraged almost completely to gold.

july 2011 gggg

Global X Funds restricts components of GGGG’s index to companies that generate at least 95% of their total revenue from the production and sale of gold.

Here are the index’s current top ten constituents:

Company Exchange: Symbol % of Net Asset
Allied Nevada Gold NYSE: ANV 5.51
Randgold Resources NASDAQ: GOLD 5.48
Eldorado Gold NYSE: EGO 5.45
Kinross Gold NYSE: KGC 5.41
Centerra Gold TSX: CG 5.28
Osisko Mining TSX: OSK 4.98
Harmony Gold NYSE: HMY 4.78
AngloGold Ashanti NYSE: AU 4.46
Gold Fields NYSE: GFI 4.32
Alacer Gold TSX: ASR 4.31

The GGGG ETF is in competition with Van Eck Global’s Gold Miners ETF (NYSE: GDX) and Junior Gold Miners ETF (NYSE: GDXJ). Many of the companies listed in GGGG’s index are also tracked by GDX and GDXJ.

However, due to GGGG’s pure gold guideline, some major gold production don’t make the cut — including Barrick Gold (NYSE: ABX), Newmont Mining (NYSE: NEM), and Yamana Gold (NYSE: AUY).

Barrick Gold, for instance, is the largest gold-producing company in the world by volume, but the company actually generates about 15% of its revenue from copper.

The GGGG ETF is a niche product in the precious metals sector. But if you’re really looking to invest in pure gold stocks, I would recommend choosing two or three individual stocks from those listed on the GGGG index.

Piggybacking again on last Friday’s Wealth Daily, I believe the best alternative to pure precious metals stocks is the physical metal itself. There’s nothing purer than holding .9999 bullion in your hand…

Other good alternatives to pure gold stocks include gold royalty and streaming companies, like Royal Gold (NASDAQ: RGLD) or Franco-Nevada (TSX: FNV).

Good investing,

Luke Burgess
Analyst, Wealth Daily
Investment Director, Hard Money Millionaire and Underground Profits

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