E Three Exposures To Small Cap Gold With Varying Risk Profiles

TM Editor's Note: This article discusses one or more penny stocks and/or microcaps. Such stocks are easily manipulated; do your own careful due diligence.

If there’s one thing markets seem to agree on as we head into the close of the second quarter, it's that precious metals are on the way up. Nobody is certain about what the Federal Reserve plans to do next in the US. There is no foreseeable letup of disappointing data out of both China and Europe. The UK could leave the EU near term, and the implications of this remain very much unclear. All this uncertainty translates to a risk-off sentiment, and risk-off sentiment fuels capital flow towards safe haven assets. There are a number of ways to play this fundamentally driven precious metals trend, and they aren’t just limited to large miners/producers.

Here are three different types of small cap exposure, each with a different risk profile, that could be rewarding allocations going forward.

Exchange Traded Funds - Global X Explorers and MV Junior Gold

ETFs can be a simple way to diversify across a range of companies in a particular space, and the small cap gold space is no different. The two primary ETFs in the sector are Global X Funds (GLDX) and Market Vectors Junior Gold Miners ETF (GDXJ). The former focuses on gold explorers. That is, companies who seek out unmined deposits, and undertake drilling programs, with the goal of proving resources. The latter combines both exploration juniors and small cap mining companies that are already producing gold.

Within the ETF subsector, therefore, there’s even further risk diversification available. The Global X allocation is the riskier of the two funds, since its constituent companies have no guarantee of revenue generation. The companies that make up the fund have an average market capitalization of circa $500 million, and so while the fund is a little riskier than its Market Vectors counterpart, the potential upside on the explorers is larger. Why? Because markets have already priced in the resources for the producers that make up the Market Vectors fund. Since they remain unproven for the companies in the Global X fund, resources are yet to be priced in, and therein lies the upside potential.

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Alexa Cress 3 years ago Member's comment

Very Interesting that the turkey based project is on high demand.

Ross Gritner 3 years ago Member's comment

This was pretty instructive. Do you have more information about the Turkey-based project?

Sarah Angelo 3 years ago Member's comment

Interesting that the Global X allocation is the riskier of the two funds, good to know.

Danny Straus 3 years ago Member's comment

Agreed.