Which Gold Miner ETF Has the Highest Correlation to Gold?


"Investors should do their research before buying into a position and keep in mind that gold mining ETFs are not always perfectly correlated with spot prices, although the relationship between the two is fairly positive."

Business Insider, ETF Database

With the evolution of the ETF industry, investors now have numerous cost-efficient tools at their disposal to “fix” just about any financial objective. The growing popularity of commodities investing has also spawned a wave of interest in exchange-trade products targeting gold. As such, ETFs offering exposure to the precious yellow metal have found their way into many investors’ portfolios. Interest in gold miners ETFs has also been growing as some prefer indirect exposure to gold by tapping into commodity producers equities [see also GLD-Free Gold Bug ETFdb Portfolio].

The profitability of gold miners generally depends on the price they are able to sell their product at, similar to just about every other business out there. Running a gold mine entails a fairly fixed cost structure, and as such, swings in gold spot prices can have a material impact on profitability. Because of this, some investors have grown to believe that gold mining companies tend to have a very positive correlation with the price of gold. Unfortunately, this is not always the case for one simple reason: gold mining companies hedge [see How To Find The Best Gold Miner ETF].

Many, but not all, gold miners hedge out their exposure, essentially locking in a price to sell their product in the future to ensure stable cash-flows. This is one of the big reasons why when gold prices jump, or plunge, gold mining stocks don’t always follow their metallic leader so to speak. To further demonstrate this point, below we take a closer look at the price correlation between the gold miners ETFs and the price of gold. . .View Full Article

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