ETFs for Golden Returns

01/27/2015 9:00 am EST

Focus: STOCKS

Doug Fabian

Editor, Successful ETF Investing, ETF Trader's Edge, Weekly ETF Report, and ETFU.com

Our latest new buy recommendations are exchange-traded funds that we think we’ll deliver golden returns, suggests Doug Fabian, editor of Successful ETF Investing.

The turmoil in the currency markets also is causing a flight to quality in real assets, namely gold. Gold prices now are breaking out and I suspect the gains in the yellow metal are going to continue for a while longer.
 
Our first new buy is for the Growth Portfolio and it is the Market Vectors Gold Miners (GDX). This fund is designed to mirror the price movement of the NYSE Arca Gold Miners Index.

So, with GDX you are getting exposure to some of the biggest gold mining companies around, including Goldcorp (GG), Barrick Gold (ABX), and Newmont Mining (NEM), to name just the top three.

The recent volatility in markets has caused the aforementioned flight to quality in bonds, but it also has caused a spike in the price of gold and gold mining stocks.

I’m anticipating more upside here on the GDX breakout and hence our new recommendation. To protect ourselves on the downside if the trend turns in GDX, I recommend placing a stop-loss order in at $18.

Our other recommendation is for the Aggressive Portfolio and it also is aimed at gold mining stocks. The fund I’m recommending here is the Direxion Daily Gold Miners Bull 3X Shares (NUGT).

This ETF is very aggressive, as it applies 3X leverage to the same gold mining index that GDX is pegged to.

This is a fund that can go against you quickly, as well as provide a lot of fast upside, so just be mindful of how much of your Aggressive Portfolio you devote to this speculative gold miner play.

To protect us on the downside in NUGT, I recommend a stop-loss order be placed at $11.

In your Aggressive Portfolio, I also want you to buy the Global X Gold Explorers ETF (GLDX), which is pegged to an index called the Solactive Global Gold Explorers Index, comprised of small-cap gold mining stocks.

With GLDX, you are getting different, and unleveraged, exposure to a segment of the miners other than what you get with NUGT. To protect ourselves on the downside in this fund, I recommend placing a stop-loss order in at $10.50.

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