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  • The Venture Capital In Gold Has Begun! 0 comments
    May 20, 2013 7:38 AM

    Alongside its physical avatar, Gold being a traded commodity produces some reasonably successful alternate investment prospects in the form of broader market funds like Gold Explorers ETF or a similar equity traded fund that intends to be a pure play on the worldwide senior Gold miners' equity.

    The current dip on the spot prices has stressed even the quality exploration stocks to a level, where street logic points to a clear bottoming out. Investment in Gold Explorers funds at this point and time achieves the desired diversification within the sector and clearly seems poised to outperform in wake of any future rallies, Some at the wall street are rightly terming this opportunity as Venture Capital in Gold.

    For instance, Gold Exploration investments via the ETF route are not physically backed but the underlying index will track the most the most liquid industry stocks often spanning markets around the globe and in return charge an expense which is considerably lower than stocks and mutual funds.

    Investors in general, feel secure while putting their hard earned money in the precious metal as most consider Gold to be naturally shielded in times of inflation, volatility in an economy and alongside this it is also believed to cut risks against the fall in the U.S dollar.

    Intrinsically, the mining sector is a big industry entailing a number of processes. Some big names in gold mining sector include companies like AngloGold (NYSE:AU) and Barrick Gold (NYSE:ABX). Risk friendly folks may consider direct equity but must be ready to involve research and comprehensive historical data else a broader option is presented in the form of Gold explorers ETF, which is a low to moderate risk product and in turn offers a basket of exploration firms.

    This gives an immediate exposure to the segment with diversification, tax advantages associated with ETF investing and additional rebates on fees and commissions and it can be traded just like shares during market hours on a stock exchange.

    Each unit of the equity traded fund represents a number / portfolio of company stocks.

    This metal at any given time is always in great demand (globally) such that the supply is never enough to meet all the requirements.

    Whilst being treated like a commodity, the volatility factor on gold's spot prices are widely criticised and cannot be ignored, yet it has a strong probability to yield profits in a long term.

    The high risk to reward ratio in the gold exploration investing can be rightly termed as the venture capital gold investing. Venture capital is a funding given to start-up companies though posing great potential, at the same time projecting risks due to many reasons one being a lack of operational history / maturity.

    The large companies in the mining segment are extracting gold annually that can be measured in millions of ounces. This consumption needs to be countered with new discoveries of the mineral deposits. When an exploration company makes a discovery it is rewarded in return with an increase in its stock price and market cap.

    Exposure to the asset may yield amid long standing surge in the gold spot prices, for only when the supply is acutely short, the senior miners and the institutional investors will fund the exploration groups to look for newer gold resources. The industry is critically news sensitive and that makes it necessary to regularly track the investments in Gold exploration funds.

    Global X Gold Explorers ETF [GLDX] is attuned to the yield of the Solactive Global Gold Explorers Index that tracks a list of top holdings like the Torex Gold resources INC (7.34%), Lydian International LTD (7.10%), Rubicon minerals CORP (6.23%) and Sea bridge gold INC (5.98%) etc.

    The fund management claims that GLDX provides a window to investors who are seeking venture capitalism in gold through this gold explorers fund at a low annual expense of 0.65% on annual transactions, a claim they support with the fact that the last major gold discovery was announced in year 1997.

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