Riding the boom on gold bullion exchange-traded funds, Van Eck is preparing to launch an ETF that would follow publicly traded gold mining companies, according to The Wall Street Journal.
If approved, the New York firm's Van Eck Associates' Market Vectors Trust would follow the two-year-old American Stock Exchange's Gold Miners Index, which presently includes 43 companies, such as Newmont Mining Corp. of New York, Barrick Gold Corp. of Toronto, and Vancouver-based Goldcorp, Inc.
The fund comes on the heels of the $660 million iShares Comex Gold Trust, and the $6.5 billion StreetTracks Gold Trust, neither of which is more than six months old. Neither has an expense ration over 0.4% before broker commissions. Most metals mutual funds have expense ratios of about 1.6%, but no broker fees.
The Amex index includes companies that focus on gold and silver and have a daily volume over 50,000 shares for at least six months and market capitalizations greater than $100 million.
The Van Eck ETF will have a total expense ratio of 0.55%
Investors who choose to bet on the companies, rather than the bullion, may face more volatility, but also better tax treatment.
Because precious metals are classified by the Internal Revenue Service as collectible, gains on metals held more than a year get slapped with a 28% tax, compared to 15% for other long-term capital gains.
"Mining equities leverage the gains or losses in metals themselves," said Brien Lundin, editor of Gold Newsletter. "On the way up, this can be a wonderful thing. On the way down, it can become quite a painful thing," Lundin said.
Although there are funds that invest in mining companies, the Van Eck ETF would present stiff competition, with a lower price and better trading flexibility, according to Steve Jon Kaplan, editor of TrueContratian.com.
Mining companies are also susceptible to rising costs such as labor, fuel and insurance, whereas gold is a pure asset, free of credit risks, or new share issuances, said Jon Nadler, an analyst with bullion dealer Kitco.com. "It is the asset you would buy to protect against potential decline in your other assets," he said. "It performs when paper does not."
Nadler, skeptical that the Van Eck ETF can pan investment gold, suggested other products may better play off of the recent gold rush.
"If one wishes to purely speculate," he said, "could entertain ETF or options on gold, perhaps a smattering of mining shares, but that's about it."
The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.