While gold has had a decent run so far in 2014, up nearly 7 percent, the GDX, the ETF that tracks gold, is up 26 percent since Jan. 1.
Does that mean the GDX is the better way to play bullion? Not so fast, says one gold watcher.
"They have razor-thin margins and gold mining is becoming more and more costly with less and less yield," said Gina Sanchez, founder of Chantico Global, who believes gold miners may be a difficult purchase for the long haul. "This is challenging as a long-run investment play," she said.
Gold miners are right now being helped by higher gold because of global tensions and low interest rates, Sanchez said. And the GDX may also get a boost from its components.
"If you look at the GDX, the top components—Goldcorp, Barrick and Newmont Mining—analysts have excellent expectations for all three in terms of price targets," said Sanchez, a CNBC contributor. "If they were to hit average consensus price targets, you could see a return on the GDX anywhere upwards another 20 to 30 percent. So I would say that's a pretty good short-term gain."
| Company | % of GDX's net assets | Price (opening 7/18/2014) | Mean price target |
Goldcorp
13.69%
$28.14
$27.17
Barrick Gold
12.86%
$19.18
$20.30
Newmont Mining
7.65%
$25.45
$27.17
Ari Wald, head of technical analysis at Oppenheimer & Co., says the GDX "looks great" from a technical perspective.
"This is really your classic textbook reversal here after a huge decline into its 2013 lows," said Wald. "Gold miners spent the next year stabilizing. [The GDX] made its first higher low just last month in June. And now it's breaking above this downtrend off its base. So we think this is an upside breakout."
Wald believes the long-term trend is pointing in favor of higher prices. "We think it can get up to $38 on the upside and we're looking at $24 as our stop-out," he said. "That's a pretty attractive risk/reward."
"This is one of our favorite trades right now," added Wald.
To see the full discussion on the GDX, with Sanchez on the fundamentals and Wald on the technicals, watch the above video
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