1. MUX.T MUX McEwan Mining Inc. (component of GDXJ and GDX and XGD.T)
2. NMI.T NMKTF Newmarket Gold Inc. (component of GDXJ and XGD.T)
Going forward Spock will be generally avoiding any PM stock that is a component stock of GDX, GDXJ, XGD.T and SIL ETFs. “they are the tail that wags the dog for a lot of their component holdings.” is what is happening now. And you can bet Wall Street is using these ETFs to farm the herd.
Many are also not aware that GDX and GDXJ fund managers are lending out component stocks for short selling purposes, and earning income from doing this. There is no way I want a broker lending out my stock to the shorts! And then there is the counter party risk of the stock borrower … can they return the stock to the ETF manager in a market crisis, if they are short and blow up?
This paragraph in particular is a concern: As you can see, ETF rebalancing can affect your individual stock holding as well as the growth of the ETF itself. A third twist comes into play if there happens to be a 2x or 3x levered ETF that tracks a similar basket as the ETF in question. In the case of GDXJ, there is JUNG, Direxion Daily Junior Gold Miners Bull 3X ETF, which is an ETF tracking the 300% daily move in the MVIS Global Junior Gold Miners Index, the exact same basket that GDXJ is tracking. As money flows into JNUG, and its inverse sister JDST (300% inverse to GDXJ), these levered ETFs must either buy or sell the underlying, in this case GDXJ, or options on the underlying. Either way, the counterparties will then look to hedge their risk by either offsetting trades of the tracker, GDXJ, or some proprietary basket they use comprised of some of the same stocks held by GDXJ. Regardless of the ‘how’ the end result can mean that your individual stock holding gets pushed around in price for reasons that are unrelated to that specific company’s fundamentals.