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How To Invest In Gold Stocks

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How To Invest in Gold & Silver Mining Stocks

South Africa has extensive natural resources, so it’s been one of the most popular areas in which gold mining companies operate. However, South Africa has gone through economic difficulties that are different from what you see in certain other countries with extensive gold reserves, including the U.S., Canada, and Australia. Because of that, South African gold mining companies have a political risk that those in other areas don’t always have.

In particular, investing in South African miners creates the risk of working in an economy that relies heavily on natural resources. That’s fine when commodity prices are healthy, but the extreme volatility in the gold market and in other important commodities has wrought havoc on the South African economy. Mining companies in the country now routinely have to deal with labor actions and government regulation, and the rising costs of operating in South Africa have led some companies to consider simply exiting the area. For instance, AngloGold Ashanti has looked at divesting all of its South African assets, instead concentrating on the mining properties it has in other parts of Africa as well as in South America and Australia. For a South African country to consider such a move is a bold step, but it shows just how much uncertainty there is about gold mining there. Investors who buy shares of South African mining companies need to appreciate that risk in order to make informed decisions.

How Should An Investor Invest In Gold

Investing in gold is something that takes a fair amount of research. There is no option that is perfect for every investor. Each option has pros and each option has its cons too. Look at the option that you want to invest in and determine which one is right for you.

Gold investments are not completely safe investments. There is no investment that has a good return that doesnt have risk. For this reason it is highly advisable that you do not put all of your eggs in one basket. You want to have a good mix of investments.

The most common reason to have a gold investment is to protect yourself when your other investments fail. That means you need to have other investments that have the potential to give you a payout. You should also consider the ability to liquidate gold, it isnt that easy to liquidate gold at a moments notice. Especially since you want to sell gold when the prices are favorable for you. Most investment experts say that you should keep your investments in gold to around 10-20% of your portfolio.

In addition to this you want to determine your purpose for investing in gold. Are you looking for a long term retirement plan? Or are you looking to have a precious metal should the financial market completely collapse? Some investors are also just looking for a way to make money over time with no specific goals.

Streaming And Royalty Companies

For most investors, buying stock in a streaming and royalty company is probably the best all-around option for investing in gold. These companies provide miners with cash up front for the right to buy gold and other metals from specific mines at reduced rates in the future. They are like specialty finance companies that get paid in gold, allowing them to avoid many of the headaches and risks associated with running a mine.

Benefits of such companies includes widely diversified portfolios, contractually built-in low prices that lead to wide;;in good years and bad, and exposure to gold price changes . That said, none of the major streaming companies has a pure gold portfolio, with silver the most common added exposure. So you’ll need to do a little homework to fully understand what commodity exposures you’ll get from your investment. And while streaming companies avoid many of the risks of running a mine, they don’t completely sidestep them: If a mine isn’t producing any gold, there’s nothing for a streaming company to buy.

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How To Invest In Gold And Risks Explained

  • 8:02 ET, Aug 17 2021

GOLD can be a good long-term investment, and it’s available in more ways than simply buying bars or jewelry.

The history of gold dates back to the BC era but it’s still quite valuable today, with the price depending on supply and demand.

Typically, ahead of a potential economic downturn, investors like to stock up on the precious metal.;

For example, between June 30, 2007 and November 20, 2009, the price of gold jumped 76%.

In comparison, the S&P 500 – an index that tracks the performance of the 500 largest companies – dropped 27% over the same time period.

There are several ways to invest in gold – you can physically own the precious metal or indirectly hold it through stocks and funds.;

Below we explain how.

As with any investment, keep in mind that you’re not guaranteed to make money and the value of your assets could actually fall.

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For an example of whats possible, take a look at the almighty run that De Grey Mining Ltd went on:

A huge run if Ive ever seen one.

Of course, not all gold stocks will go up like this. Its a speculative space of the market.

DEG started as an extremely speculative company and eventually turned into an ASX gold heavyweight.

A rare feat indeed.

But all up, I think theres a number of legitimate reasons to be excited about golds potential.

If you want to learn more about ASX gold stocks, then look no further.

The latest addition to our editorial team, Brain Chu, has put together a presentation on gold which you can get access to right here.

Brian is an absolute gold nut, and Id highly recommend you see what he has to say.


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Pan American Silver Corp

Pan American Silver might be named after a different precious metal, but it still has significant gold resources and investment.

When Covid first hit, the stock price plummeted down, but its since recovered. The stock prices 2020 peak was previously in the lower 20s, but its now approaching 40. Not a bad recovery!

The stock could increase or decrease mildly over the next year, but judging by its average line, there may be a slow decline over the next year. T

hat doesnt mean you shouldnt invest, but avoid pouring your money in during a strong upward spike.

Caledonia Mining Corp has had a wild ride recently.

After soaring beyond its previous 2020 benchmark a few weeks ago, its now crashing down again.;

Overall, its stock price is on the lower end of the price scale, falling in the lower twenties range.;

The forecast is murky, and its hard to predict whats coming next. However, if you dont mind taking on some risk, now could be a good time to buy. Its also a great opportunity for daytraders to make a profit.

First Majestic Silver Corp faces similar projections to the Pan American Silver Corp, which is helpful considering their names are confusingly similar.;

Both have stock prices that could increase or decrease by $10 this year.

First Majestic Silver Corp could end up in the $13 USD range on a good year, or the $7 USD range on a bad one.;

Do You Want Global Scope In Your Gold Mining Stocks

The nature of gold mining is such that you can find companies of all shapes and sizes to consider for your portfolio. There are some companies in the mining industry that only have a single mine as the primary source of revenue and profit. That can be lucrative if that particular mine turns out to perform much better than investors expected, but it also leaves the company exposed to massive risk if something happens at that mine to curtail or halt production, such as a labor strike or an accident.

At the other end of the spectrum are companies that have massive operations that span the globe. If you want the giants of the gold mining industry, then two of the biggest companies you’ll find are Newmont Goldcorp and Barrick Gold.

Newmont Goldcorp brings together gold mining assets located in nine different countries, and its yearly production of roughly 7.4 million ounces puts it among the leaders of the industry. In early 2019, Newmont Mining merged with Goldcorp to create this colossus in gold mining, and with assets throughout the Americas as well as in key areas of Africa and Australia, Newmont Goldcorp has economies of scale that most miners can only wish they had.

It takes more growth to move share prices for large companies like Newmont Goldcorp and Barrick, but it also takes tougher conditions to hurt them. Conservative investors looking to add gold mining stocks to their portfolios should take a close look at Barrick Gold and Newmont Goldcorp.

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Buying Gold Mining Stocks

If you can’t get your hands directly on any gold, you can always look to gold mining stocks. Keep in mind however, that gold stocks don’t necessarily move in concert with bullion prices, because mining companies succeed or fail based on their individual operating performance and how they deploy their capital and generate profits. You don’t have the security of physical possession of the metal;if the companies you buy are unsuccessful.

Advantages Of Physical Gold

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  • Inflation hedge. Advocates argue that, as a tangible asset, gold maintains an intrinsic value that always reflects the cost of living. There’s an old saying that an ounce of gold equals the cost of a quality business suit. That held in 1934 when men’s suits fetched $35, and it does today too, with gold close to $2,000 an ounce .;
  • Counterweight to stocks. Like other commodities, gold acts as a counterfoil to equities, usually moving in the opposite direction of the stock market. Case in point: When the subprime mortgage meltdown began in 2008, ushering in the Great Recession, goldwhich for years had been trading in the $400-600 rangeshot up to $1,000 per ounce and kept going for the next three years.
  • Safe haven. Gold’s seen as a safe haven in uncertain times or whenever there’s socio-political turmoil. After the 2016 Brexit vote, its price rose over 10% in one month, for example. “Owning gold,” says Dennis Notchick, a certified financial planner at Stratos Wealth Advisors, “appeals to individuals who are concerned about the collapse of global markets or other threats to a government’s ability to back its currency.”;
  • Virtually indestructible. “Physical gold cannot be hacked or erased,” says Charles Stevens, COO of Bullion Box Subscriptions. “Gold cannot be destroyed by a natural disaster and it will not get worn down in time.”

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Put Money Into Gold Etfs / Shutterstock

Investors might buy into gold exchange-traded funds to avoid the uncertainty that comes with investing in a particular company.

These funds, which are traded like stocks, pool investor capital and pour it into a variety of gold and mining companies. Some popular gold ETFs in Canada include XGD-T and HGY-T. ZJG-T is also an option if you want to invest in smaller exploration firms.

How Do We Get Gold

Although panning for gold was a common practice during the California Gold Rush, nowadays it is mined from the ground. While gold can be found by itself, it’s far more commonly found along with other metals, including silver and copper. Thus, a miner may actually produce gold as a by-product of its other mining efforts.

Miners begin by finding a place where they believe gold is located in large enough quantities that it can be economically obtained. Then local governments and agencies have to grant the company permission to build and operate a mine. Developing a mine is a dangerous, expensive, and time-consuming process with little to no economic return until the mine is finally operational — which often takes a decade or more from start to finish.;

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Gold Mining Companies & Stocks

Investing in gold mining companies is an interesting way to combine gold investments with traditional stocks. By purchasing shares in a company that works with gold, investors can access the profits of gold without buying or selling it themselves. This form of investing can also provide lower risks, as there are other business factors at play that can help protect investors from flat or declining gold prices. That being said, investors conduct significant research when searching for the right company to invest in. There are risks associated with the mining industry that can interfere with overall profits or even bring up ethical concerns. Always do your research when selecting a gold mining company to invest in.

Gold Futures And Options

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Another option for investing in gold is through the futures and options markets. Gold futures contracts are agreements to buy or sell gold on a future date at a predetermined price. Gold options contracts give you the option to buy or sell gold on a future date at a predetermined price, but youre not obligated to exercise the option.

The value of gold futures and options contracts is related to investors outlook on the price of gold around the expiration date of the contract. The value of these contracts also depends on how close they are to their expiration date. All gold futures and options contracts involve leverage, so changes in the price of gold will be amplified in your portfolio.

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Gold Etfs & Mutual Funds

Gold exchange-traded funds and mutual funds are accounts that purchase gold on an investors behalf. The shares that make up these funds each represent a fixed amount of gold and can be bought and sold like stocks. This is one of the best ways to invest in gold as ETFs and mutual funds allow investors to work with gold, without dealing with the costs of physical ownership . There are fees associated with buying and selling gold through ETFs or mutual funds, but they are often much lower when compared to the management of other assets.

Note that ETFs and mutual funds dealing with gold often invest in other commodities as well, meaning you will rarely find a firm that deals strictly with gold. This can be beneficial if your goal is to diversify, though it may require learning about other markets as well as gold. Be prepared to research different funds when considering ETFs or mutual funds for your gold investment.

Gold Moves In The Opposite Direction Of Stocks

Assuming that there is a stock market crash 6 months from now, I can predict in very clear terms what will happen to the price of gold. 9 times out of 10, gold moves in the opposite directions direction of the stock market.

When the stock market crashes, gold spikes up, guess what else spikes up? Commodities, we are of course talking about crude oil, processed oil, gasoline, tin, copper or even coffee that’s how the market behaves historically. Again, this is 9 times out of 10.

There are some anomalies from time to time, but as a rule, the price of gold tends to spike up when the market crashes. Use this to your advantage. When this happens, gold is doing its job. If you park enough of your network into gold, this predictable movement will protect the rest of your investment portfolio from complete devaluation.

It’s very important that you start scaling back on your very risky equity’s exposure right before a market crash. Considering how heated the Dow Jones is currently, this is probably a good time to dial back Twitter, Facebook, and Google, definitely Yelp and other highly speculative stocks and stock classes like solar energy stocks.

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What’s The Safest Way To Invest In Gold

But buying gold bars and coins isn’t the only way to invest in gold. There are various gold investment options available in the market that offer better returns and liquidity. From ETFs and mutual funds to mining company stocks and futures – there are plenty of ways to invest in gold.

In this blog, we’ll delve deeper into a few of the safest ways to invest in gold. But we’ll first understand why there’s such hype about investing in gold. Let’s get started.

In Gold We Invest – But Why?

Gold has been the asset of choice for investors for several decades. It isn’t surprising considering that prices of the precious metal have continued to rise in the past. Gold has managed to retain and amplify its store of value, even during periods of economic crisis and recession.

That makes it a wise investment for hedging against inflation. Moreover, investing in gold has historically yielded higher returns.

But it isn’t the only reason why investing in gold is such a great idea.

Here’s the thing – gold shares a low correlation with other financial instruments, such as stocks and bonds. That means when the value of stocks and bonds goes down, the value of gold typically experiences an uptick. It’s the reason many investors turn to gold during times of geopolitical crisis and economic downturn.

That, in turn, escalates gold prices even further, making it a wise investment even when the economy is slow.

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Gold has a proven track record for returns, liquidity, and low correlations, making it a highly effective diversifier, says Juan Carlos Artigas, director of investment research at the World Gold Council.

These qualities are especially important for investors:

  • Returns: Gold has outperformed stocks and bonds over certain stretches, though it doesnt always beat them.
  • Liquidity: If youre buying certain kinds of gold-based assets, you can readily convert them to cash.
  • Low correlations: Gold often performs differently from stocks and bonds, meaning when they go up, gold may go down or vice versa.

In addition, gold offers other potential advantages:

  • Diversification: Because gold is generally not highly correlated to other assets, it can help diversify portfolios, meaning the overall portfolio is less volatile.
  • Defensive store of value: Investors often retreat to gold when they perceive threats to the economy, making it a defensive investment.

Those are a few of the major benefits of gold, but the investment like all investments is not without risks and drawbacks.

While gold performs well sometimes, its not always clear when to purchase it. Since gold by itself doesnt produce cash flow, its difficult to determine when its cheap. Thats not the case with stocks, where there are clearer signals based on the companys earnings.

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