Gains In Gold Miners

Investors just can't get enough gold. The yellow metal is maintaining its steady rise this year and touched a record high of $1439.15 an ounce. Various market strategists continue to predict that massive inflation will result from all the extra monetary liquidity as the world unveiled its various stimulus plans. Gold is often seen as a hedge, in good times and bad, against inflation and uncertainty. The precious metal has taken on a much greater importance in individual investors' portfolios as inflationary worries persist.

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Funds like the ETFS Physical Asian Gold Shares (NASDAQ:AGOL) and SPDR Gold Shares (NYSE:GLD), which each hold the physical metal, have exploded in recent months as political unrest in the MENA and turmoil in Japan took hold. The SPDR Gold ETF now has over $50 billion in assets, making it one of the largest exchange traded funds. As budget and debt issues continue to plague developed market governments, gold will undoubtedly reach higher highs. However, some of the best gold returns may lie with those who physically dig the stuff out of the ground.

Mining Some Profits
With the continuing pressures facing the global economic situation, investors may want to look at the gold miners. So far this year, companies involved with mining the precious metal have outperformed the metal itself by nearly five percentage points. Due to the miners' production cost structure, often with considerable fixed expenses, these companies can act as a leveraged plays on gold prices. A 1% increase in the price of gold will often equal a greater than 1% increase in operating income. These nuances give the gold miners a unique risk/return profile relative to physical gold prices. Gold-mining stocks are typically more volatile than the physical metal. This increased volatility can mean higher profits for investors in up markets.

In addition, many of these top-tier miners do something that physical gold doesn't; pay dividends. While the sector isn't known for its huge dividends, higher gold prices could change that. With gold hitting record highs, many firms are seeing operating margins surge for each ounce of gold produced. As the industry continues its trend of profitability, expect more dividend increases like Agnico-Eagle's (NYSE:AEM) recent 256% increase to its quarterly dividend.

Panning For Gold Plays
With China on the brink of surpassing India as the world's largest importer of gold and various macroeconomic concerns still plaguing the global economy, gold as an investment still has appeal. While many analysts are conflicted about price targets for physical gold, as long as gold stays high the miners will benefit. The Market Vectors Gold Miners ETF (NYSE:GDX) is the most popular way to access gold miners, offering exposure to both U.S. and international gold miners. The fund has attracted nearly $7 billion in assets and has quickly become the "one stop shop" for miner exposure. However, it's not the only game in town.

Serving as exploration companies, junior mining firms search for new mineral deposits and are a major source of future mine supply. Juniors are critical in the early stages of a new deposit, bridging the long lag time between when a new claim is found and when it is brought into production. The Global X Gold Explorers ETF (NYSE:GLDX) allows investors to bet a basket of these small fries like US Gold (NYSE:UXG) and Rubicon Minerals (NYSE:RBY). Expenses run 0.65% for the fund.

With its 1.5% dividend, Peruvian miner Buenaventura (NYSE:BVN) may be one of more interesting values in the sector. Recent mining strikes along with political pressures have sent shares downward. However, the company has a long history of profitability and low debt, in addition to exposure to silver. Shares of BVN trade for a forward P/E of just 10.

Bottom Line
With investor interest in gold showing no signs of weakness due to a variety of macroeconomic concerns, higher gold prices are almost assured. Investors looking to protect themselves or cash in on the rising prices may want to consider the gold miners. The additional leverage and possibility of dividends makes funds like the Direxion Daily Gold Miners Bull 2X (NASDAQ:NUGT) and companies like Goldcorp Inc. (NYSE:GG) quite appealing. (Find out how average investors are breaking into what was once reserved for the ultra rich. Check out Hedge Funds Go Retail.)

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