The gold rush in frontier markets for both investors and enterprising ETF sponsors has officially begun. Some investors will experience huge windfall profits, while many will see the promises of wealth turn empty.

While risk aversion is still in play domestically, 2009 proved that investors were still willing to ante up on high-risk, high reward prospects. Frontier funds absorbed $375 million in the second half of 2009, the Wall Street Journal reports, erasing $301 million in outflows in the first half of the year for total inflows of $74 million.

Bargains are plenty overseas, where investors are snapping up names trading for less than 10 times earnings while offering healthy dividend yields in the upper single digits. Exchange-traded funds with exposure to the growing markets play it safe, choosing to avoid liquidity traps and investing directly in the most liquid stocks. Claymore/BNY Mellon Frontier Markets ETF (FRN: Quote, Profile, Advanced Chart, News), for instance, is weighted nearly 50% in telecommunications and banking stocks, which are universally some of the biggest stocks by market capitalization.

Following a bullish start to 2010, a quick three-day plunge shows investors are still playing defensively. Investors placed bearish put option bets worth more than $1.2 billion in stock on several top exchange-traded funds.

A total of 400,000 contracts were traded in the Materials Select Sector SPDR fund (XLB: Quote, Profile, Advanced Chart, News), the SPDR S&P Retail fund (XRT: Quote, Profile, Advanced Chart, News), the SPDR KBW Regional Bank Index (KRE: Quote, Profile, Advanced Chart, News) and the Consumer Discretionary Select Sector SPDR fund (XLY: Quote, Profile, Advanced Chart, News) last Friday morning. The volume was so great that analysts suspect it was part of a large institutional hedging operation, with each put priced 20% out of the money, Reuters reports.

The trades, which cost just $6.2 million in premiums, suggest that at least one institution is protecting itself from a potential drop of 20% by March expiration.

As the world economy weakens through nearly two years of recession, China’s stimulus driven economy is exploding in every direction. A growing export economy has exerted a tremendous impact on the boom, which has covered all sectors of the Chinese economy, including real estate.

Chinese exports rose 17.7% year over year against 55.9% growth in exports, Miyanville reports. Both export and import numbers performed well over expectations of 4% and 31% respectively. Analysts now believe the central bank of China will be forced to increase currency rates to encourage a mostly domestic driven economy.

Despite the clear trend in Chinese growth, it is not Chinese ETFs that are attracting investors, but rather gold ETFs. If China revalues the yuan, gold, which is priced in dollars, should rise in value, providing healthy returns to investors. One popular gold fund is the MarketVectors Gold Miners ETF (GDX: Quote, Profile, Advanced Chart, News), which has routinely performed better than the change in market prices for gold.

Volume on US Treasury ETFs grew 10% higher than the average as investors took bets on how this week’s record issuance would be received by investors. The Treasury will auction a record of $118 billion in debt this week alone.

Today, the US Treasury auctioned $44 billion worth of two-year notes to strong bidding from institutions, but weaker action from foreign central banks, pushing rates on the note to their highest level since October, Bloomberg reports. UltraShort 20+ Year Treasury ProShares (TBT: Quote, Profile, Advanced Chart, News), a fund that is leveraged twice to the inverse daily change of Treasuries, posted a .32% gain.

Investors are expecting weaker demand for the five-year and seven-year sales that are to be conducted on December 29 and 30. On Wednesday, the Treasury will auction $42 billion in five-year debt, followed by $32 billion in seven-year debt on Thursday. Recently, middle-range debt obligations have received far less interest from investors than short term debt obligations.

Global fears of another deflationary wave stemming from Dubai and Greece debt issues have sent investors fleeing from gold ETFs. The most popular fund, SPDR Gold Shares (GLD: Quote, Profile, Advanced Chart, News), shed 13.72 tons in just one day of trading this week.

The recent dip in gold prices from $1200 to $1120 per ounce suggests that despite global inflationary pressures from world governments and central banks, investors are still fleeing to cash when problems arise. TheStreet reports that while gold prices dipped, the US dollar index tacked on 1% against a basket of currencies as investors sought cash and equivalents, rather than commodities or equities.

While investors may not favor US based fund SPDR Gold Shares, a spokesman for ETFS Gold Trust (SGOL: Quote, Profile, Advanced Chart, News), a smaller gold ETF with holdings in Switzerland, indicated that inflows remained strong in the ETF Securities fund, most likely due to where the gold is stored.