Gold miners

As an investor, I am attracted by cheap assets, with the recent turmoil in Gold, Gold miners certainly qualify to be looked at. And indeed the current valuation makes them interesting.

Let's just try to think about the underlying business here. Mining is not a fun business. It's labor intensive and capital intensive with many uncertainty.
To increase output beyond certain level, marginal cost of production will go up pulling average production cost up. Economic of scale doesn't have a big benefit in this industry. Miners can't control the price of their product, so they are price takers. (Yes they can hedge the uncertainty with future contracts, but still its not ideal). They have little influence over the demand of their product, and have to deal with operation risks. The conclusion is, this is not a great business, we have to buy them CHEAPLY from the start to increase the safety and return of our investment.

In the mining business, their is no innovation, advertisement, brand effect or whatever...There is only operation efficiency and cost control. Miners get stuff out of the ground as efficiency and cheaply as possible to make profit. But being price takers, even with the best management and most efficient mining team, you still can't control your fate. So to reduce our risk, we have to DIVERSIFY to reduce Unsystematic risk and take advantage of general cheap asset condition. That way, even if one or two of the miners went out of business, others we bought can still make a profit.

The best way to do this is of course study and hand pick 8 to 10 miners, but they are not interesting to look at and I don't like the business at all.
GDX contain larger miners include Goldcorp, Barrick, Newmont...which is safer bet.
GDXJ have some low quality junior miners that you might not want, but if you think hand picking 8 to 10 junior miners are too much work, it provides you the convenience.

The key theme is buy on cheap valuation when they are out of favor and diversify, then be patient...

Below are just useless guesses
With central banks hinting at slowing money printing, people are expecting yield to increase, that's causing the most recent drop in gold prices. But it will be a extremely hard task to get all these liquidity back, and Japan's crazy policy of currency debasement might have very very bad results. If Japan's currency implode, leading to a rush back to safety, gold prices will go up and beneficial to miners. However, miners don't necessarily need higher gold prices to do well, they need to lower production cost and maintain a stable margin.

Lastly, gold can be just part of your portfolio, but should never be all of your portfolio.