Gold Juniors ETF Should Lift This Whole Asset Class


"Thousand-fold increases are common when a junior finds gold. . ."

The first-ever gold juniors ETF is only two months old but already attracting attention among investors. Its owners will be hoping that Van Eck's GDXJ will map the progress of gold ETFs like GLD in promoting its asset class.

GLD owns more physical gold than many countries, and has been a major force in making gold easy and cheap to own, without the problems of security and storage. Buyers can own their gold online in a brokerage account and trade it instantly anytime.

Gold Juniors
Smaller gold and silver stocks divide into metal producers and explorers—and many mix both. They are a devil to analyze as data is hard to verify and the company's claims are always over-hyped.

However, in past gold booms, real money was made by investing in these junior stocks—if the right ones were picked. Thousand-fold increases are common when a junior finds gold, but very few do.

Conversely, the juniors are highly leveraged to a rising gold price. Explorers own claims to mineral rights on land, and the value of these claims surges exponentially in a gold boom.

In theory, owning juniors is the very thing to do if you believe a big price hike in gold and silver lies ahead. You have leverage to the price of precious metals without having any leverage in the form of debt.

2010 Golden Year
For 2010, experts from Merrill Lynch to Goldman Sachs and gold bugs like Jim Sinclair are saying this is year is great for gold.

But if you're not confident about picking winners among the juniors, then the diversification offered by the GDXJ is a neat way out. Van Eck has invested GDXJ in 56 small caps from larger firms to the more obscure ones.

If GDXJ performs well, the real winners will still be some individual smaller gold and silver companies. For if GDXJ proves as popular this year as it likely will be, this will also be the making of fortunes in some individual junior stocks that presently lie in obscurity.

GDXJ's success will attract investor attention back to this largely forgotten asset class. And GDXJ will pay the price of diversification by missing the biggest killings.

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