A Gold Bullion rally has on every occasion, coincided with massive investment in-flows for the soon to be senior miners of the metal. In a high demand scenario, Gold producers are left with a little choice but to fund the gold explorers, who in turn look out for extractable gold deposits to meet out the demand surge. Although market professionals have always exploited this know-how by aggressively investing with the exploration companies whenever a gold rally is in anticipation, it is the retail and common investor, who are now playing heavy bets on the asset class and sizable investments are finding their way through the Gold Explorers ETF and similar equity products that track the Solactive Index.
Considering a scenario where Gold rises up to 25% from the current spot values, a strategic exposure to an exploring company may deliver 50% or more upside in the same market.
Catching to this trend are the billion dollar hedge funds. Their magnitude of investments in the gold seekers often makes them seem as Venture Capitalist of Gold, especially in case of the funds which are bullish on other related products of the metal. The high risk attributed to this class is completely ignored by these big money managers who are completely sold on the excellent past performance of the equities engaged in discovering the noble metal.
In 2009 Exeter Resource Corporation, a Canadian explorer of the shiny metal, witnessed over $ 50 million worth of equity being acquired by selected Big League Investment banks in a little less than 24 hours. The stake acquirers insisted on complete secrecy, although as per market insiders they included some of the biggest Hedge funds of the world. A similar investment strategy which is lured by the top returns is also backed by the fact that Gold Exploration backed Funds and stocks provide better leverage than the miners or the physical metal and it is a perfect hedging tool to a weak American dollar with which it shares a perfect inverse relation.
Gold is undoubtedly a hugely sought after metal. It is one of the rarest precious metals in the world. Digging gold has become an important means of earning for regions with substantial deposits of this metal and also one of the most niche services for any industry. One might be easily tempted to invest in this glittering element and you can do it in more than one ways.
Investing in gold coins and bars might seem an easy option. For a more advanced approach you can consider stocks of companies engaged in extraction and selling of the yellow metal. Buying exchange-traded future contracts and buying physically backed futures products are also very popular.
Conservative investor have always shown faith in significant mining companies in wake of recent under-performance because spending in Mining equities provides dividends which are absent in physical Gold investments. Also one needs to incur a higher tax liability on physical commodity than equities.
Investors seeking to diversify from physical commodities towards the exploration side may consider the ETFs channel. Apart from a broad exposure to the sector, there are multi-bagger opportunities owing to the current industry status where most explorers are yet to post any earnings. A new found mine or a major deposit discovery can add manifold value to the stock thus may even appeal to the individuals wanting to play venture capital gold. Once silver spot values consolidate, focus will return to the yellow metal which is still in a long with standing rally barring a few cyclic corrections. Investments in Gold Explorer equity traded funds are a high risk-high reward zone and must be trespassed with caution.
Global X Gold Explorers ETF mirrors the performance of the Solactive Gold Explorers Index. GLDX management charges expenses as per 65 basis points. Torex Gold Resources Inc is the anchor stock with 7.09% of the assets and the following top 6 equities account for between 6% - 7% of the assets each making it a top heavy fund.