New Gold ETF Could Shine in Short Run

NEW YORK (TheStreet) -- The launch of the Market Vectors Junior Gold Miners ETF(GDXJ Quote) Wednesday morning is an exercise in perfect timing. Gold prices continued to rise to record highs in the U.S. and London Wednesday as the dollar weakened for the third day in a row.

The new ETF, which Market Vectors filed to launch back in May, will track a basket of "junior" gold mining companies.

The launch of the new fund comes in the wake of Market Vectors' popular Gold Miners ETF(GDX Quote), which tracks larger gold mining companies. GDX, which was launched in 2006, currently has $5 billion in assets.

As the dollar weakens and investors continue to worry about inflation, gold ETFs have become increasingly popular. According to recent data from the National Stock Exchange, gold bullion funds like SPDR Gold(GLD Quote) continue to attract assets. Year to date, GLD has seen a net inflow of $12.5 billion, and the fund is currently the second largest ETF.

GDXJ tracks the Market Vectors Junior Gold Miners Index, which seeks to provide investors with exposure to a global universe of publicly traded small- and medium-capitalization companies that generate at least 50% of their revenue from gold and/or silver mining. Companies included must hold real property that has the potential to produce at least 50% of the company's revenue from gold or silver mining when developed, or primarily invest in gold or silver. The top three holdings in the fund are Coeur d'Alene Mines(CDE Quote), New Gold(NGD Quote) and Silver Standard Resources(SSRI Quote).

Since GDXJ tracks a group of small mining firms, the fund will be subject to different risks than the large-cap GDX. Many of the companies included in the underlying portfolio, such as SSRI, are still in the development stage and have yet to generate material revenues. Because these companies have lower trading volume and less liquidity than their large-cap peers, GDXJ will be subject to more volatility than GDX.