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Quick Take: Here's How to Trade Gold Miners

Stocks in this article: GDX GDXJ

NEW YORK ( TheStreet) -- After gold made its low near $1,180 per ounce, it has had a nice bounce to the upside, John Najarian, senior economic adviser for Capital Gold Group, told TheStreet's Joe Deaux.

The painful drop in gold, which is coming off its worst quarterly performance, has hurt more than just investors holding the physical metal, he said. The gold miners are also seeing the pain, both on their income statements and in their stock prices.

Najarian said the miners' costs are around $900 per ounce, so the huge drop over the last several months is really going to hurt their margins. Adding to the pain, many of these companies don't bother with hedging anymore, which would have slightly or fully offset the recent decline in gold prices.

However, Najarian suggested gold now offers a nice entry point, and he was buying when the yellow metal broke below $1,200 in late June.

For a well-diversified portfolio, he said the Market Vectors Gold Miners ETF (GDX) could have a lot of value going forward. Also, there's the Market Vectors Junior Gold Miners ETF (GDXJ), which will likely be more volatile due the smaller size of the companies.

Just as the VIX speaks for investor sentiment regarding the S&P 500, the GVZ shows gold investors' sentiment with the volatility of the precious metal. The measurement is remarkably high for what was once considered a safe haven., Najarian said. He concluded that a lot of smart shorts have covered and he doesn't think gold will go below those lows made at the end of June.

-- Written by Bret Kenwell in Petoskey, Mich.

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