Qatar to Invest $10 Billion into Gold Stocks

There was an announcement earlier in October which was bullish for gold mining stocks, but was ignored by Wall Street.

Qatar Holding, a part of the Gulf state's sovereign wealth fund, is planning to create a separate investment vehicle – Qatar Gold – to buy stakes in, or take over, gold companies.

According to sources familiar to with the fund's plans, it will invest about $10 billion in metals and mining companies overall, with more than $5 billion to be invested specifically into gold equities. The stocks would be of companies owning producing gold mines.

The new fund's first deal involved a financing deal for Aim-listed European Goldfields to help it to fund the company's gold mines in Greece in exchange for a 30 percent stake.

The Gulf emirate is launching this fund in an effort to diversify its assets away from both natural gas and the U.S. dollar.

Gold mining stocks have underperformed the price of the precious metal over the past year. Most of them have barely budged while the price of the yellow metal is about in excess of 25 percent.

The CEO of Qatar Holding, Ahmad al-Sayed interest in gold pre-dates the metal's and he has been working on an entry strategy for the past two years.

A banker who advised on the European Goldfields deal, Ken Costa, said “[Qatar Holding] is of the belief that the gold price over time will continue to establish new highs and that the constraints on supply will be outstripped by demand.”

The move by Qatar may make the Market Vectors Junior Gold Miners ETF (NYSE:GDXJ) a very interesting play.