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The South African Rand And Gold Miner ETFs

By
Paul Baiocchi
October 10, 2012
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A crumbling rand has real implications for investors holding gold miner funds.

A massive strike at platinum mines in South Africa has set off a domino effect, inspiring similar strikes at properties mining everything from gold to chromium. For investors holding gold mining ETFs, this should set off alarm bells.

That’s because the labor unrest currently enveloping South African mining properties has sent South Africa’s currency, the rand, into a tailspin. On Monday, the currency hit a three-year low, and there’s no bottom in sight.

Since a fair amount of the world’s precious metals production comes from South Africa, investors in gold mining ETFs need to take a step back to re-evaluate how the currency risk will impact their portfolios moving forward.

Since March 1, the rand has fallen 16 percent against the U.S. dollar, and more than half of that loss has come in the past month alone.

 

South African Rand since 3/1/12

 

Six gold miner ETFs currently compete for investor dollars, with subtle differences among them that produce different portfolio exposures.

Of the six funds, only one—the Global X Gold Explorers ETF (NYSEArca: GLDX)—has no exposure to South Africa. Among the other five, only one—the Market Vectors Junior Gold Miners ETF (NYSEArca: GDXJ), has less than 10 percent of its portfolio in South Africa.

 

ETF Weightings

 

What separates GDXJ and GLDX from their competitors is the mandate each fund follows. GDXJ targets junior gold mining companies, the majority of which are still in the exploration phase and haven’t begun producing. GLDX only targets exploration firms, hence the moniker “Gold Explorers.”

 

ETF DAILY DATA

Massive inflows into U.S. equity funds on Monday, Dec. 22, propelled total ETF assets to a new record.

'SPY' raked in more than $12 billion Monday, Dec. 22, pacing State Street's issuer-leading inflows on the day, as total U.S.-listed ETF assets jumped to $2.005 trillion.

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