Playing Gold Exploration With ETFs

With the implementation of QE2 around the corner, fears of inflation have elevated and the US dollar has been diminishing in value making precious metals even more appealing.  As a result, ETF provider, Global X, launched the Gold Explorers ETF (GLDX), which is the first pure play ETF offering exposure to gold exploration companies.  

GLDX seeks to replicate the performance of the Solactive Global Gold Explorers Index, which is a benchmark that measures the performance of companies engaged in exploration for precious metals.  Furthermore, GLDX is expected to carry an expense ratio of 0.65% and consist of 30 different holdings, with the majority of the holdings involved with exploring for gold reserves throughout the world.  Lastly, from a country exposure, the index is heavily concentrated to Canada and the United States. 

As for the future, there are many forces that are likely to further support the price of gold.  The monetizing of debt by the US as well as enhanced concerns of a sustainable global economic recovery are just two of these many forces. 

Although there is a lot of upside potential for gold exploration companies in the near future, it is important to keep in mind that the holdings of GLDX are the smallest, and therefore riskiest, companies that are engaged in gold production. 

Some other ways to gain exposure to companies that are involved in gold extraction and production include the Market Vectors Gold Miners ETF (GDX) and the Market Vectors Junior Gold Miners ETF (GDXJ).  One major difference between these Market Vectors ETFs and GLDX is that the holdings of GLDX generally focus on early stage activities of gold exploration. 

Disclosure: No Positions

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About etftutor
Kevin Grewal is the founder, editor and publisher of ETF Tutor and serves as the editor at www.SmartStops.net, where he focuses on mitigating risk and implementing exit strategies to preserve equity. Additionally, he is the editor at The ETF Institute, which is the only independent organization providing financial professionals with certification, education, and training pertaining to exchange-traded funds (ETFs). Prior to this, Grewal was a quantitative analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds a bachelor's degree from the University of California along with a MBA from the California State University, Fullerton. He is contributing author on The Street - his articles can also be found published on various sites including Yahoo! Finance, The Globe and Mail , Daily Markets, MSN Money, Seeking Alpha, Fidelity Investments, Traders Library, and Minyanville. Prior to this, Mr. Grewal was an analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds

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