Considered a hot potato these days, exchange traded fund, abbreviated as ETF, is a tradable investment fund or a basket of securities, which tracks an underlying asset, be it a stock, commodity or bond.
ETFs can be bought or sold via a brokerage firm, with the main motive of diversifying the risk by making investments in a number of sectors or asset classes. They usually trade at a discount or at a premium to NAV (Net Asset Value) or NTA (Net Tangible Asset). ETFs are also attractive to the investors as ETFs are structured in a cost-effective manner.
There are number of ETFs including sector and industry ETFs, bond ETFs, market ETFs, commodity ETFs and derivative ETFs; however, our focus area for this article is gold ETFs under the commodity ETFs section.
Gold-Backed ETFs - Highly Structured Products
The ultimate safe haven, gold is always in demand as it prevents investment erosion experienced during uncertain times such as trade war tensions, Brexit, the recent Coronavirus epidemic and other global events. Gold prices increase higher and higher, in the environment of great turmoil, thus making the yellow metal a hit amongst investors by delivering a decent return with not much exposure to the market risk.
There are different ways of making investments in gold.
- Direct approach - purchasing physical gold such as in the form of coins, bars or jewellery
- Indirect approach - purchasing gold mining stocks, buying gold-backed ETFs, etc.
Of these various ways, gold-backed ETFs are gaining prominence, owing to being highly structured products.
Gold-backed ETFs are purely for investment purposes, and with surge in Gold prices, more and more investors are getting attracted to this investment class.
Gold ETFs provide access to much more convenient and economical investment vehicle. This category of ETFs seeks to replicate the performance of the underlying asset, which could be gold bullion or gold producers. These have come into prominence, owing to growing demand for gold, as a safe asset among others.
They can also take various compositions including backed by stocks, backed by securitisation, etc. Under the physical gold-backed ETF category, physical gold is bought and then units are distributed, considering the amount allocated by the investor.
Some gold-backed ETFs also maintain exposure to gold mining stocks along with physical gold, which, in turn, gives an additional advantage over direct investment in gold.
Gold ETFs are witnessing positive participation on a global level, also leading to increased focus on market players (gold miners and explorers). One player that is engaged in developing a number of exploration and mining opportunities related to gold and copper in the Australian market is Alice Queen Limited (ASX: AQX).
Alice Queen – A Market Darling with 6-Month Return of Over 172%
Alice Queen Limited (ASX: AQX) is an advanced gold and copper exploration company, boasting a diversified project portfolio, with following key projects-
- Flagship Horn Island Project (84.5 per cent interest) in Torres Strait, Queensland
- Backed by required infrastructure, the project is prospective for gold-bearing Carbo-Permian style vein/breccia;
- For the project, AQX has an earn-in and JV agreement with established gold miner St Barbara Limited;
- At this project, AQX has confirmed surface sampling programs returning anomalous gold in soil and rock chips samples, with a maximum assay result of 215 g/t Au from rock chip sampling and a maximum assay result of 2.31 g/t Au from soil sampling over the current Mineral Resource.
Project Location (Source: AGM 2019 Presentation)
- Yarindury Project (90 per cent interest) in New South Wales
- It is a highly prospective Cu/Au porphyry project, along trend from Newcrest Mining Limited’s (ASX: NCM) Cadia-Ridgeway mine (50m ounces gold + 9m tonnes copper);
- The Company in 2019 announced enhanced prospectivity of the project, after the discovery of significant porphyry Au-Cu mineralisation at the Boda project of Alkane Resources;
- AQX is currently undertaking an 11-target drilling program at the project, targeted towards testing a wide range of basement magnetic features under younger cover in EL8646 (Yarindury).
Alice Queen’s primary product is gold, the go-to asset in the face of any global uncertainty. In the current scenario of renewed worries over the coronavirus epidemic and its impact on global economy, gold prices are going up and are expected to continue to rally in the future.
Appreciating gold prices and the Company’s progress with its key projects seem highly optimistic for AQX, giving it further growth opportunities.
On 10 February 2020, the stock of Alice Queen advanced further by 33.33% to close at A$ 0.040. The Company has a market capitalisation of A$ 810.16 million with approximately 24.3 million outstanding shares. In the last six months, the stock has delivered an excellent return of 172.73%.