One way investors in gold mining stocks can protect themselves is to invest only in mutual funds or Exchange Traded Funds that track indexes.
Index investing takes out the risk that you — or a mutual fund manager — assumes when picking individual stocks. The index basically follows the industry as a whole. Therefore, your portfolio does as well as the industry minus expenses.
However, index funds are — or should be — much cheaper than actively traded funds. That’s because they don’t have to pay a manager to choose companies to buy and sell, and their transaction costs are a lot smaller, because the fund should buy and sell only when the index changes, which should not happen often.
The first one was started by the American Stock Exchange (now it’s listed by the NYSE Arca), and it’s known as the Gold BUGS Index (HUI). It’s made up of the fifteen largest gold producing companies that do not hedge the price they receive for their gold output more than one and a half years in advance. (Doing so protects against market price drops, but also keeps them from benefiting from market price increases.)
It was started March 15, 1996, and created by the acronym of Basket of Unhedged Gold Stocks.
A second closely watched precious metal index is the Philadelphia Gold and Silver Index (XAU). This is a list of eleven precious metals producers listed on the Philadelphia Stock Exchange.
There’s also the NYSE Arca Gold Miners Index (GDM). It’s around 36 publicly listed gold and silver mining companies.
The S&P/TSX Global Gold Index is most representative of gold mining stocks around the world, tracking the largest gold miners listed on the Toronto, New York or Nasdaq exchanges.
The Australian Gold Stock Exchange Gold Index (XGO) was discontinued.
The FTSE Gold Mines Index Series is designed to track the industry worldwide. It includes all companies that produce at least 300,000 a year and derive at least 51% of their revenue from gold.
The subindexes are: FTSE Gold Mines Americas Index, FTSE Gold Mines Europe Middle East Africa Index, FTSE Gold Mines Asia Pacific Index, and FTSE Gold Mines Index.
This was launched December 31, 1992. The top twenty companies in it are: Barrick Gold, Goldcorp, Newmont Mining, Newcrest Mining, Anglogold Ashanti, Kinross Gold, Gold Fields, Agnico Eagle Mines, Yamana Gold, Randgold Resources, Lihir Gold Limited, Eldorado Gold, Buenaventura ADR, IAMGOLD, Red Back Mining Inc., Harmony, Polyus Gold, Petropavlovsk, Zijin Mining Group, and Centerra Gold.