Friday, June 17, 2016

Forget About GDX; SGDJ Is Better

GDX (Van Eck Vectors Gold Miners) is one of the most popular gold-related ETFs. However, after a closer look at its performance I think there is another, much more suitable ETF to play the precious metals bull market. This ETF is called "Sprott Junior Gold Miners ETF and its ticker is "SGDJ".  

Why do I think so? Let me show the price action of both ETFs:

The upper panel shows GDX and the lower panel SGDJ price actions.
The panel in-between shows the relative strength of SGDJ against GDX. Note that since the beginning of the current bull market phase in gold (the violet vertical line) both ETFs price actions have looked similarly (upper and lower panels). 

However, the panel in the middle shows that SGDJ has been stronger than GDX. 

In my opinion, the most important factor standing behind this phenomenon is the structure of both ETFs. For example, 13.4% of total GDX holdings belongs to royalty and streaming companies (mainly Franco - Nevada, Silver Wheaton and Royal Gold). 

These companies are the laggards - since January 2016 they have gone up "only" 45.8% while GDX is 84.7% up. 

As a matter of fact, during bear markets in gold, streaming and royalty companies are stronger than GDX. And vice-versa - during bull markets they are weaker. So those trying to make money during a bull run should avoid GDX. Instead of GDX they should choose SGDJ.

The chart below shows the SGDJ top 10 holdings:

As the chart shows, there is only one royalty company, Osisko Gold. 

However, Osisko is not a typical royalty company. Apart from royalty interests, they also have significant stakes in such companies as: Oban Mining, Falco Resources or Barkerville. Add to that Exploration and Evaluation Assets (for example Coulon Project) and you have something between a miner and a financial royalty company. 

Finally, all top 10 holdings are quite large companies (market caps starting from around $1 billion). 


  1. Thanks SD for all your articles. I would suggest the GDXJ instead. Same performance but much better volume and you can do options if you want.

    1. Harry,
      You are definitely right - see my next article

  2. Isn't the fairer comparison to GDXJ? Then they underperformed? Or ZJG.TO outperformed but fell back?

    1. Goldmineseeker,

      You are right and I am wrong - see my next article