Wednesday, May 03, 2006

Van Eck gold mining ETF perfect for goldbugs.

Van Eck Associates has filed a prospectus with the SEC for an ETF based on the AMEX gold miners index [GDM].

This index is modified market capitalization weighted index comprised of companies involved primarily in mining for gold (GLD) and silver (SLV). The index requires that companies be actively traded and have a minimum $100 million market cap. The index is much broader than than AMEX gold BUGS index [HUI], which limits itself to gold miners that do not hedge their gold exposure past 1.5 years.

According to Van Eck, the GDM index has a beta of roughly 2.0 compared to the price of gold bullion. Every dollar change in gold spot prices tends to move the index by two dollars. For people seeking gold related volatility, this is perfect. Unlike physical gold, gold miners do generate income and pay dividends. Also unlike the metals ETFs, capital gains from trading in shares of the gold miners index fund will be taxed at 15% and not 28%. Van Eck plans to charge 0.55% as management expense, which is slightly less than the 0.60% typical for narrow sector ETFs.

Update:Now that GDX has begun trading on the AMEX, Van Eck has created a homepage for the fund, with plenty of information on it.

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