Gold is on the rise. The commodity has seen a dramatic surge over the past two months since hitting bottom in late June.
But considering the historic lows that we've seen in gold producers, even bigger gains could be made by investing in gold miners.
Right now, GDX is the cheapest it's been since 2008.
David Einhorn, the billionaire fund manager, is one of the biggest GDX shareholders. His hedge fund Greenlight Capital currently owns 8.8 million shares, making him the fund's fifth-largest institutional shareholder.
In November 2011, this is what Einhorn had to say about gold miners:
At the time, GDX was trading at nearly $60 a share and the price of gold was between $1,700 and $1,800 per ounce. Today GDX is trading around $28, and the price of gold is nearly $1,400 per ounce.
These numbers point out the huge disconnect we've seen between the price of gold and the mining companies that produce it.
The five largest holdings in the GDX fund make up 45% of the total portfolio. They are Goldcorp (NYSE: GG), Barrick Gold (NYSE: ABX), Newmont Mining (NYSE: NEM), Silver Wheaton (NYSE: SLW), and Randgold Resources (Nasdaq: GOLD).
Risks to Consider: In the past, some gold miners have allocated their capital poorly, spending too much on acquisitions when gold prices are high. Also, should gold prices decline dramatically, miners could suffer a permanent loss of capital.
Action to Take --> An exchange-traded fund like GDX is a conservative way to play gold miners -- an inherently risky sector. Although this investment is certainly more speculative, today's low prices have ironed out some of the risk. Set a tight stop-loss at the recent low of $24 with a target of $45 per share.