Junior Gold Miners: What You Need To Know

Investing in gold and other precious metals is considered a very good way to accumulate wealth. The companies in this sector deal with the extraction and trading of metals. As the market grows, the demand for metals soars. Consequently, many gold trading companies have been established. Let’s talk about junior gold mining companies and if it’s beneficial to invest in them.

Junior gold miners

A publicly traded junior mining company is a small-cap company which mines gold, silver, uranium, and other precious metals. A junior gold mining company is a type of mining company which exclusively explores gold deposits and carries out mining activities.

Moreover, these companies are considered to be typically in their growth stage. They are usually penny stocks. They invest most of their earnings in the expansion of their business.  As a result, they do not pay dividends.

Such companies are very sensitive to gold prices. A drop in gold prices can lead to the shutting down of the business. Furthermore, these companies are not listed on the Philadelphia Gold and Silver Sector Index (XAU). Hundreds of such companies are listed on the TSX Venture Exchange and the Toronto Stock Exchange (TSX).

Investing in junior gold mining companies

The top five junior gold mining companies will definitely outperform the top five major gold mining companies due to various economic factors. The capital inflow in this sector has increased due to the rising investor interest levels. It is very important for long-term investors in this sector to familiarize themselves with the demand and supply dynamics of gold.

Gold prices are volatile, therefore, a sharp drop in prices can easily cause severe losses. It is relatively challenging to project a company’s success due to this factor. India and China are the biggest gold importers in the world. In May, the demand for gold in India increased substantially; since April, the gold prices are on a downward trend.

For short-term investors, the stock prices this year do not look that good. Comparatively, commodity stocks have performed worse due to subdued oil prices. As a matter of fact, GDXJ has lost 19.31% this year. Accordingly, the prices of junior gold mining penny stocks have come down.

There is a fantastic opportunity to gain cheaper entry into this sector for people who are ready to take a high level of risk. Even though the risk in this sector is legendary, the rewards are exceptionally high. The current condition of this market requires investors to be vigilant.