What’s the only thing worse than being long gold as it plunged 12% since June 1st? Being long a gold mining company who has massive exposure to the plunging gold price, as well as some added extra exposure in terms of the company’s management, fixed costs, debt, and so on… to wit — The Gold Miners ETF (GDX) is underperforming by -62% when comparing it to Gold Futures. GDX lost more than half of its value (-52%) since this time in 2008. SPDR Trust (GLD) has still made substantial gains since 2008, but down -18% since this time last year, and the December 2013 Gold futures down -18% in the same period.
Now, we actually think the GLD ETF is one of the only acceptable commodity ETFs, because it invests in the actual commodity (it holds gold in a vault), thus doesn’t have a problem with negative roll yields like CORN, UNG, or USO do. But this performance discrepancy highlights a problem we didn’t really touch on in our commodity ETF takedown – which is that there exists even worse products, commodity producer/miner ETFs.
Just look at the performance of these commodity producer/miner ETFs versus the commodity ETFs versus the actual commodity itself.
In Gold…
(Disclaimer: Past performance is not necessarily indicative to future results)
And when looking at a basket of commodities:
(Disclaimer: Past performance is not necessarily indicative to future results)
As a whole, the CBRQ market is underperforming by around -10% when compared to CCI. Now, sure – we suppose there is an argument that a company, via debt, leverage, management skill, and so forth – could outperform the raw commodity they produce in a sort of wholesale model where they procure it for cheap, then sell it for a profit. There is sure something to be said for pulling some Gold out of the ground for “free” then selling it at $1,200 per ounce, or Oil and selling it for $90 per barrel. Problem is, it isn’t really “free”. Those big Caterpillar trucks probably run a few million, and a new deepwater oil drilling rig will run you about $250k to $430k per day according to RigZone.com.
But there are also so many negatives that come with owning all the other stuff that comes with a commodity company. It’s hard enough to trade commodities successfully, without having to worry about company problems in addition to prices. We prefer tactical exposure to commodities via Ag trading CTAs.





