Why Gold Stocks?

For investors with a positive view on the price of gold, they may want to consider adding gold stocks to their overall precious metals allocation.

Gold stocks are sensitive to the price of gold because of their inherent operating leverage. As the price of gold rises, it typically translates into higher profits for a gold company. As you can see from the table below, the annual returns from gold stocks have been pronounced relative to the price change of gold.

Gold Bullion vs. Gold Stocks: Annual Total Return Performance (%)

*NYSE Arca Gold Miners Index (GDM) with dividends reinvested. GDM is a modified market capitalization weighted index comprised of publicly traded companies primarily involved in the mining of gold and silver in locations around the world.

How to Invest in Gold Stocks?

For most investors, how to invest in gold through stocks, we suggest they take a diversified approach when investing in gold stocks because of the company-specific risk when investing in an individual stock. A popular and convenient way to invest in a basket of stocks is through exchange-traded funds or ETFs. Like mutual funds, ETFs provide diversification of holdings but with the added benefits of providing intraday liquidity (the ability to buy and sell throughout the trading day) and lower management fees.

In partnership with ALPS Advisors, how to invest in gold through stocks, Inc. and ALPS Distributors, Inc. Sprott offers two gold mining ETFs: Sprott Gold Miners ETF (NYSE Arca: SGDM) and Sprott Junior Gold Miners ETF (NYSE Arca: SGDJ). 

Find out more about Sprott ETFs

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You’ve probably heard gold discussed as one of the most reliable investments available. Investors often think of gold as a sort of safe-haven investment, trusted to maintain its value in even the most unexpected of social or economic circumstances.

But investing in gold isn’t as straightforward as it bestinvest fundsmith equity sound. There are many different types of gold investments, and each offers benefits and drawbacks that can make or break your portfolio.

Thinking of investing in gold? Read on to learn about the different ways you can invest and how to make sure you’re buying the right assets for you.

Why Invest in Gold?

There are many reasons that gold is such a popular investment and has remained that way throughout much of history. The value of paper currency and other assets can vary depending on social and political changes, but gold has maintained its value since it was first used for money in the 7th century B.C.

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Since gold remains stable in almost any circumstance, investors value it as a hedge against potential economic shifts, including both inflation and deflation. Gold is also a globally valuable asset, so it doesn’t weaken in tandem with how to invest in gold through stocks particular government’s actions the way national currencies do.

Even if you’re not a gold enthusiast (or “goldbug,” as they’re commonly called), investing in gold can be a smart way to ground a diversified portfolio in a foundational asset that’s resilient how to invest in gold through stocks virtually all market variability. Here are a few ways you can start investing in gold.

Investing in Physical Gold

The most obvious way to invest in gold is to purchase it as a physical asset. Your primary options for buying physical how to invest in gold through stocks are bullion, coins, and jewelry.

When buying physical gold, you should familiarize yourself with a handful of related terms:

• Troy Ounces/Troy Pounds: A system of weight often used to measure precious metals; 1 troy ounce is equal to about grams.
• Mint: A producer of precious metals products like gold bullion or silver coins.
• Sovereign Mint: A mint run by a nation that creates products to be used as legal tender (e.g. the United States Mint, the Royal Canadian Mint, the Perth Mint). Sovereign mint products must meet the nation’s standards for purity and metal content.
• Private Mint: A mint run independently that creates products according to its own standards of purity and metal content (e.g. Engelhard, PAMP Suisse). Private mint products are not considered legal tender.

When purchasing physical gold, it’s essential to consider how you plan to secure and insure your gold. Unlike stocks and ETFs, physical gold can be stolen, so it’s rarely a good idea to keep gold in your home. Most gold owners invest in bank storage or use online platforms like Vaulted.

Gold Bullion

Most people think of gold bullion as the large, uniform physical gold bars stored in massive vaults in places like Fort Knox and the Federal Reserve. In reality, gold bullion can come in any amount or shape as long as it meets a minimum purity threshold and has been certified for its weight and quality.

You can buy gold bullion in units as low as a fraction of a gram or as high as a kilogram or more.

Gold Coins

Gold bullion often comes in the form of gold coins, which are a bit more popular since they come in more manageable denominations and are easier to transport and store securely.

The primary drawback to gold coins is they often trade at a markup over an equivalent amount of gold bullion. You can find deals on gold coins at independent traders and pawn shops, but you’re more likely to encounter unreputable dealers and counterfeit products this way.

Gold Jewelry

Investing in gold jewelry instead of coins or bars can seem like a good idea since gold jewelry serves a function while also appreciating in value. However, gold jewelry comes with many more risks than gold bullion or coins and is only a good idea if you’re an experienced gold investor who knows exactly what they’re looking for.

Gold jewelry is frequently sold at independent stores and pawn shops, how to invest in gold through stocks, where it’s more difficult to verify a piece’s authenticity. It’s wiser to purchase from a well-established, reputable dealer and ask for documentation of your item’s authenticity.

However, you’re less likely to get a good deal at a jewelry store, which is the second drawback of investing in gold jewelry: It comes at a significant markup compared with gold coins or bullion since the item’s price incorporates how to invest in gold through stocks cost of manufacturing and design. Often, the price of a piece of jewelry is far greater than how to invest in gold through stocks value of the raw materials used to make it.

If you’re in the market for a piece of jewelry anyway, opting for a verified gold item in the event you decide to sell it down the line can be smart. But if you’re approaching the market as an investor, there are better ways to invest in gold.

Investing in Gold Mining Stocks

Purchasing physical precious metals is just one way to invest in gold. You can also buy stocks in the gold industry itself, most commonly by investing in companies that mine gold.

Popular gold mining companies that trade on the New York Stock Exchange include Sibanye Stillwater Ltd (NYSE:SBSW), Barrick Gold Corp (NYSE:GOLD), Newmont Corporation (NYSE:NEM), and Franco-Nevada Corp (NYSE:FNV).

As you build out your gold investment strategy, be aware that gold mining stocks’ value is tied to more than just the value of material gold. The company’s performance and profitability weigh more heavily in determining its stock price, so be sure you research the stocks you choose carefully. Using a stock screener from a company like Atom Finance can help you find quality companies to invest in.

Investing in Gold ETFs and Mutual Funds

In the same way diversifying your portfolio can help increase your financial stability, gold ETFs and mutual funds exist to help counterbalance the higher risks of investing directly in gold mining stocks.

These funds contain “bundles” of gold investments spread across material assets, stocks in mining and refining companies, and futures and options for gold bullion. By combining these different asset types into a single investment fund, gold ETFs and mutual funds offer investors a “best of both worlds” scenario. Investors gain exposure to stable gold assets and the flexibility of trading via a brokerage, without taking on the same amount of risk associated with buying individual gold mining stock.

Investing in Gold Futures and Options

Only experienced investors should trade in futures and options, whether gold or otherwise. A futures contract states that you agree to buy or sell an asset for a particular price on a specific date, regardless of what the market does. An options contract is similar, but it gives you the choice to buy or sell the asset if it reaches how to invest in gold through stocks certain price by a certain date.

Investors who trade in futures and options must consistently monitor their holdings, so these are only a good choice for those who spend their day-to-day watching the markets. If you aren’t careful, these contracts will expire and you’ll lose your investment completely.

Final Word

If this is your first foray into gold investment, stick with the sure bets: gold ETFs and mutual funds that are well-balanced how to invest in gold through stocks can help balance your portfolio as well. If you have your heart set on buying physical gold, start small and make sure you purchase from verified sellers and get plenty of documentation to certify your purchase.

Like any investment, gold can be a great addition to your portfolio as long as you do your research, make sound decisions, and don’t try to bite off more than you can chew. Once you’re a more experienced gold trader, you can start experimenting with riskier investments and see where it takes you!

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