Thursday, May 9, 2024

Should You Invest In Gold Stocks

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Net Net Gold Mining Stocks

Should you invest in gold rather than stocks or Bitcoin?

What about those net net gold mining stocks I mentioned earlier? Are there any available today?

There might be.

To screen for these stocks, remember what net net means. First, under a Quick NCAV approach, youll want to look for gold miners that have Current Assets greater than Total Liabilities, less the value of Preferred Shares.

The formula is:

Quick NCAVNet Current Asset Value = Current Assets –

If youve identified gold miner stocks that fit this criteria, then you can do a deeper dive into them by looking at their off balance sheet items, such as pension plans, legal penalties, operating leases, and other items. With this approach, youre looking at the whole company to determine whether it is a good investing opportunity. If youve found a cheap gold stock, its always worth a deeper look!

Should Investors Be Looking At Gold Right Now

The haven metal has had a long history of preserving wealth, but investing in it requires doing some digging

With inflation and geopolitical tensions on the minds of every investor and their mother, everyone is looking for ways to de-risk their portfolios. While some tech-savvy millennials and Gen Z investors might look at cryptocurrencies and NFTs as the way forward, many others might think about investing in gold.

So is it a good idea to put some of your money in the precious metal? What are the reasons why you should invest in gold? And how exactly can you do it? Those questions and more will be addressed in the sections below.

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.

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Able To Be Used As Currency In Economic Crisis

If there were ever a time when traditional paper money becomes worthless, gold can serve as a valuable trading alternative. Gold has served as a form of currency for hundreds of years since it has an inherent value as a beautiful and functional precious metal.

Another reason investors add gold to their portfolio is because of its performance during a recession. Relying on stocks as the only investment is an issue during an economic downturn. Gold performs better when the stock market is down which has been the case in past recessions. While gold is a safe haven during an economic crisis, it also can be a safety net during a recession.

Gold Stocks: Anglogold Ashanti

Why you should invest in gold?

Under normal circumstances, AngloGold Ashanti which features the awesome ticker symbol AU makes noise because its consistently one of the top gold stocks to buy. As NS Energy points out, South Africa-based AngloGold Ashanti ranks third among the worlds top gold mining companies, and is the biggest producer in Africa.

Last year, AngloGold produced a tick over three million ounces of gold. Compared to other gold stocks, thats a very healthy number. Yet over the trailing-year period, AU stock is down 43%.

What gives?

Primarily, the company isnt living up to its prior standards. Compared to 2019s tally, 2020s production haul was 7% in the red. Moreover, AngloGold continues to suffer from incidents that have nothing directly to do with demand for the yellow metal.

For example, in August, Reuters reported that AU shares slumped badly after the issuing company trimmed its 2021 production estimate and posted a 10% drop in headline first-half earnings due to the impact of the COVID-19 pandemic and increased bullion mining costs.

Though badly beaten up, its possible that AU could make a comeback, especially as the coronavirus represents a thorn on the side of multiple countries.

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Buy Gold Mining Stock

This is a more indirect way to get in on the proverbial gold rush. Instead of directly buying gold or gold ETFs, you could invest in the companies mining the gold. The reason why investors might choose to do this is because it offers more potential for growth than physical gold. One gram of gold is going to remain a gramwhether ten, fifty, or a hundred years go by. A company, however, has the potential for growthand so does its stock price. You can also own gold mining stock by investing in a mutual fund that includes this kind of stock.

However, choosing this option means youll have to deal with the risks involved in buying stock, and stocks are notoriously volatile. Your investment will be vulnerable to the management of the company, and if youre interested in sustainable investments, then mining stock might not be the right pick for you.

Should You Invest $1000 In Barrick Gold

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More reading

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Real Interest Rates Are Key Factor

The gold price hit bottom at the end of 2015, just as the Fed hiked its benchmark interest rate for the first time since the financial crisis. But the gold price and gold stocks didn’t really begin to shine until the fall of 2018, when the Fed’s plan to keep hiking interest rates triggered a sharp stock market sell-off.

Gold’s persistent strength starting in late 2018 was driven by a fundamental change in the Fed’s thinking about inflation. Even as unemployment fell to a 50-year low, inflation pressures were a no-show. After slashing its benchmark overnight lending rate close to zero, the Fed has said it won’t hike interest rates until inflation is firmly above its symmetrical 2% target.

Based on the most recent Fed projections, the first hike isn’t expected before 2024. However, the Fed could alter that outlook based on incoming economic and inflation data.

The Gold Mining Sector

Why you should invest in gold

The mining sector, which includes companies that extract gold, can experience high volatility. When evaluating the dividend performance of gold stocks, consider the company’s performance over time in regard to dividends. Factors such as the company’s history of paying dividends and the sustainability of its dividend payout ratio are two key elements to examine in the company’s balance sheet and other financial statements.

A company’s ability to sustain healthy dividend payouts is greatly enhanced if it has consistently low debt levels and strong cash flows, and the historical trend of the company’s performance shows steadily improving debt and cash flow figures. Since any company goes through growth and expansion cycles when it takes on more debt and has a lower cash on hand balance, it’s imperative to analyze its long-term figures rather than a shorter financial picture timeframe.

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Best Gold Stocks To Buy

Gold stocks hit the limelight in 2020 as the price of gold climbed to record highs on pandemic-related fears driving the stock market down sharply. Since then, gold prices have tapered off a bit, leading many to believe that the precious metal is undervalued.

average return of 618%

But if you want to get in on the action, where do you start?

Heres a list of some of the best gold stocks on the market today:

One Chart Is All It Takes To Show You Why You Should Consider Buying Streaming Companies If You Are Looking At Gold Stocks

If you are looking to invest in gold stocks, you should think beyond buying precious metals miners like Newmont Mining and Barrick Gold. It’s not that there’s something wrong with them, per se, but there’s a better option if you are seeking to gain exposure to the yellow metal. If you are eyeing a gold miner, step back and read about streaming and royalty companies Royal Gold, Inc, Franco-Nevada Corp, and Wheaton Precious Metals Corp before you pull the trigger.

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Should You Invest In Gold

If youre concerned about inflation and other calamities, gold may offer you an investing safe haven. Though in the shorter term it can be just as volatile as stocks, over the very long term, gold has held its value remarkably well.

Depending on your own preference and aptitude for risk, you may choose to invest in physical gold, gold stocks, gold ETFs and mutual funds or speculative futures and options contracts. Regardless of the form of gold you choose, most advisors recommend you allocate no more than 10% of your portfolio to it.

Any form of investing carries risks. Gold is no different. But the idiosyncratic gold market isnt forgiving and takes a long time to learn. This makes gold ETFs and mutual funds the safest choice for most investors looking to add some of golds stability and sparkle to their portfolios.

How To Invest In Gold

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Part of gold’s appeal comes from its physicality: You can touch it and hold it. You can’t really hold a share of Johnson & Johnson stock. Way back in the day, ancient civilizations traded in gold because its malleability allows it to be easily turned into coins or jewellery.

Although its historically been a volatile market, gold has also proven to be a durable investment. Here are some tips on how to get started:

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Gold Mining Royalty Companies

Streaming companies pay ongoing payments, usually below market value, for the rights to mine the mineral. The companies never see the commodities themselves and only see the revenue generated by the mining project. The companies also pay a percentage of the metal that is smelted. In contrast, royalties are payments based on a low rate of the net smelter return. There are three significant types of royalty companies. The first two are purely passive, with no actual metal ownership.

The second gold mining royalty company pays the mining company one to three percent of the production and operating profits. In contrast, streaming agreements allow the mining company to receive five to 20 percent of the metals produced. Streaming agreements enable the companies to avoid price volatility and provide funds to the mining company as needed.

Streaming companies do not operate the mine. Their overhead is low, which makes them attractive to investors. In addition, because streaming companies do not own the mines, their margins are guaranteed even if gold prices go down. Because the payments are guaranteed initially, royalty companies can grow as quickly as junior mining projects. So, the question is: What makes a good streaming company? There are many advantages to a streaming company.

How To Start Investing In Gold

A common rule of thumb is to allocate 5% of your investment portfolio to gold. This helps diversify a portfolio. Once you know how much gold you would like to buy, the next step is to decide what form of gold you will invest in.

Gold investors have three distinct options to choose from: gold bullion, gold ETFs, or gold stocks. Each of the gold investing options has its own strengths and weaknesses:

  • Physical gold offers the most security and peace of mind, but comes with storage costs.
  • Gold exchange-traded funds are very convenient, but come with added fees.
  • Gold stocks tend to have the greatest upside among gold investments, but also carry the greatest risk.

This article will focus specifically on gold stocks. For more context about investing in gold in general, you can read our Beginner’s Guide to Investing in Gold.

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Gold Stocks Gold Price Hinge On Fiscal Fed Policy

The gold price charged back to $1,950 in early January. The surge came amid rising odds that Democrats would take control of the Senate in Georgia’s runoff elections. and unleash a new flood of fiscal support.

Yet Democratic victories in Georgia, rather than fueling new highs for gold and gold stocks, sparked a sell-off. The problem: The additional trillions in anticipated federal spending boosted growth expectations and Treasury yields.

Gold stocks aren’t a play on a booming economy, but are driven by interest rates and inflation. Industrial metals such as copper have surged since last summer as gold has wavered. Silver, which offers both precious metal and industrial metal characteristics and has a key role in 5G, also has outperformed gold.

Gold and gold stocks powered higher in the weeks after the coronavirus lockdown as the Federal Reserve and Congress uncorked a gush of liquidity and fiscal support. The yellow metal took off again as hopes for a V-shape recovery were splashed by a summer coronavirus wave. Wall Street began to imagine an extended era of ultralow interest rates, multi-trillion-dollar deficits, a weak dollar. And eventually a rekindling of inflation pressures.

Advantages Of Gold Securities

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Along with some of the general benefits of gold ownership, securities offer:

  • Liquidity. Trading as they do on major exchanges, gold securities are obviously easier to buy and sell than bullion. No storage costs, either aside from any management or account fees your broker or fund manager might charge.
  • Compounded returns. While dividends offered by miners are typically average at best, they are greater than no dividends at all, which is what you get from physical gold. And there is also the possibility of appreciation in the share price.
  • Low initial investment. The most cost-efficient way to invest in general, mutual funds and ETFs let you in on the game at a far lower cost. With the spot price of an ounce of gold around $2,000, $180 for a share of the SPDR Gold Shares ETF equal to 1/10th of an ounce of gold is, well, spot on.

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What Is A Gold Stock

Gold itself is a commodity, whereas gold mining companies are in the business of gold production. This means publicly-traded gold stocks are correlated with the changes in the gold price. This is to say that when the price of gold is volatile, gold mining stocks can be volatile too.

However, the ability for gold mining companies to be successful relies on their businesses generating positive and consistent earnings. Investors can add exposure to precious metals to their portfolios by buying shares of companies that deal in gold exploration and mining.

Gold Miner

You Can Buy Gold But Should You

Despite its age-old allure, gold isnt always the strong investment that movies and TV shows may have led you to believe.

I advise all of my clients to stay away from investing in gold, says Smith. Gold is a speculative investment and has a very poor long-term performance record. For individuals that still move forward on purchasing gold, buying gold in the form of a tradable security is a much easier and cheaper way of incorporating it into a portfolio.

I advise all of my clients to stay away from investing in gold. Gold is a speculative investment and has a very poor long-term performance record.

But while hes clear that he doesnt think investing in gold is a good idea, Smith does acknowledge the draw the physical metal can have. Theres something comforting about being able to touch what you own. You dont get that if you own a part of Johnson & Johnson.

Greg Young, a CFP and founder of Ahead Full Wealth Management in North Kingstown, Rhode Island, agrees. People like gold because its so easy to understand, he says. But anytime someone insists on a specific asset, there is an underlying emotional rationale.

About the author:Alana Benson is an investing writer who covers socially responsible and ESG investing, financial advice and beginner investing topics. Her work has appeared in The New York Times, The Washington Post, MSN, Yahoo Finance, MarketWatch and others.Read more

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Drawbacks Of Physical Gold

  • Expensive to hold. Storing gold at home carries enormous risks of theft or loss. Keeping it in a commercial facility incurs storage costs, often based on the size and value of the holdings . If you’re not using a professional storage facility, you’ll want to insure your gold, too another ongoing charge.
  • Illiquid. Physical gold can’t be sold with a press of the button or a call to a broker. Even with dealers acting for you, a sale can get days or weeks to settle, plus you have to arrange for shipping.
  • Does not produce income or profit. A $1,000 investment in bullion buys $1,000 period. Physical gold doesn’t generate interest or dividends. The only potential for appreciation is if there’s a jump in prices that lets you sell at a profit .

A Brief History Of Gold


In order to fully understand the purpose of gold, one must look back to the start of the gold market. Gold’s history in society began well before even the ancient Egyptians, who started forming jewelry and religious artifacts. Yet, it wasn’t until around 560 B.C. that gold started to act as a currency. At that time, merchants wanted to create a standardized and easily transferable form of money that would simplify trade. The creation of a gold coin stamped with a seal seemed to be the answer, as gold jewelry was already widely accepted and recognized throughout various corners of the earth.

Following the advent of gold as money, its importance continued to grow throughout Europe and the U.K., with relics from the Greek and Roman empires prominently displayed in museums around the world, and Great Britain developing its own metals-based currency in 775. The British pound , shillings, and pence were all based on the amount of gold that it represented. Eventually, gold symbolized wealth throughout Europe, Asia, Africa, and the Americas.

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