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Dion's Weekly ETF Blog Wrap

Stocks in this article: GDX NKY FDN

NEW YORK ( TheStreet) -- Don Dion posts his current insights on the stock, bond, commodity and currency markets in his RealMoney blog, anticipating which ETFs will be in play next.

Here are three of his blog posts from the past week:


Digging Deep

Published 7/13/2011 5:36 p.m. EDT

Optimism about the progress of global equity firms and fear of the consequences of global debt problems have created a perfect storm for precious metals miners and the owners of funds like the Market Vectors Junior Gold Miners ETF (GDXJ) and the Global X Silver Miners ETF (SIL).

While popular, equity-backed ETFs like GDXJ, the Market Vectors Gold Miners ETF (GDX) and SIL do not employ any actual leverage to enhance returns, the funds tend to take on a leveraged-like quality as the prices of precious metals fluctuate. As noted by Morningstar analyst Abraham Bailin in his report on GDX:

"This fund's exposure exhibits significantly greater leverage to gold prices than direct physical ownership. Keep in mind, however, that leverage can cut both ways. If gold prices fail to rise, or if the costs of mining outpaces the rise of bullion prices, these companies will suffer. Alternatively, if the underlying drivers of physical gold remain strong as mining operations expand, this offering should benefit in spades."

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On days like today, when both equity markets and precious metal prices advance, investors who tap into miners (as opposed to physical gold) often have the edge. The physically backed SPDR Gold Shares ETF (GLD) advanced just 0.9% today, even as headlines proclaimed the physical metal's new highs. Meanwhile, GDXJ, a riskier pick that tracks more speculative "junior" miners, jumped 4.63%.

Bernanke's comments today seemed to reflect this confusing mixture of fear and relief. The Federal Reserve chairman used the phrases "catastrophic," "self-defeating" and "dire" when describing the possible consequences if Congress does not raise the debt ceiling. At the same time, however, planting hopes of a possible additional stimulus and fuel for the U.S. economy.

Global investors are being bombarded by a complicated set of emotions right now, and I believe that this climate will continue to be beneficial to precious metal miners in the near term. While I don't advocate the selling of long-term exposure to physical gold, I am bullish on the idea of adding exposure to more stable, large-cap gold miners, such as Barrick Gold (ABX), Goldcorp (GG) and Newmont Mining (NEM) via the liquid GDX.

At the time of publication, Dion Money Management held no positions in any securities mentioned.

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