Due to the Corona pandemic, shortages in the supply chain have remained a challenge to the economic sector. The pandemic has brought about an increase in demand for commodities due to the limited supply. These factors have led to global financial constraints, with most investors in various economic sectors experiencing the impact attributed to the decrease in value of their investment.
However, economic challenges do not affect all sectors in the same way. Some sectors witness increased profitability during these periods depending on their role in economic value determination. An excellent example of such an investment is precious metals like gold. Historically, gold has been used as the most preferred economic value determinant. This has enhanced its economic relevance and ability to shield investors from adverse economic effects like inflation brought about by pandemics, and political instability, among other factors. Due to this reason, the price of gold tends to increase during economically challenging times. In turn, the value of related investment rises too. Thi trend attributes to the increased demand for precious metals from investors who want to hedge against the harmful effects. The trading sector occurrences can illustrate the concept.
In this article, we will cover one of the popular gold investments involving investing in gold stocks. This brings us to the question; which is the best gold stock to buy now?
According to the President and Editor of the Ord Oracle, Timothy Ord, the price of gold stocks could see 10X gains in the next three years. Wall Street estimates for the near future show a continued increase in price. Goldman and Citibank expect gold to rise to around $2,300 per ounce. These predictions make gold investments one of the preferable investments currently.
Things to know before investing in gold stocks
As an investor diversifying your portfolio gives you enhanced chances for profitability. With gold as one of your investment options, diversification is guaranteed. The diversification is attributed to the multiple options available for you as well as the economic role of this precious metal. However, there are various things you need to understand about a gold stock investment.
First, an investment in gold stocks is not the same as investing in physical gold. As much as investing in gold stocks gives you exposure to gold, you will not be investing in physical gold. In other words, this option lets you invest in gold by investing in companies that produce, distribute or mine the precious metal. You should note that gold stocks are prone to a fall in value depending on the situation. This means, like any other investment, there is always a risk to the value of your investment.
Another factor to consider involves the precious metal’s inverse relationship to the dollar. This means their prices tend to move in a different direction. In simple terms, gold prices rise when the dollar falls and vice versa. As the dollar is one of the most important currencies in the global economy, gold investment can serve as a hedge against inflation related to the currency. However, there are scenarios where the prices of both gold and the dollar move in the same direction. In periods of systemic risks, people tend to use gold and the dollar as safe-havens, which can result in such an effect. This means portfolios may not act according to your expectations.
Taxation is another fact of a gold stocks investment. However, there are advantages associated with a gold investment. Long-term capital gains are usually taxed lower than your marginal rate. This means your marginal tax rate is the tax on short-term assets; your marginal rate is capped at 28% for long-term investments. In simple terms, you must know the tax rating to make a more informed decision when buying or selling gold stocks.
The final and most important fact to understand is gold, like any other investment, does not provide consistent returns. Publicly trading companies gain value out of the value of goods they produce. However, gold does not have an output. Michael Reynolds, the vice president of investment strategy at Glenmede refers to this as a structural disadvantage of gold concerning other asset classes. To simplify, this means even when stocks pay dividends and bonds pay interests, gold does not produce more gold. This means your investment’s profitability is based on price fluctuations. These are not guaranteed and can have long stretches of underperformance.
Gold investment may also require you to pay a premium that does not involve the marked price. These extra costs are attributed to manufacturing, and related distribution, among other factors. This means that you will have to account for the charges to determine your profitability, which minimizes your profits.
Gold Stocks Options
Gold stocks involve publicly traded gold investments. In simple terms, you purchase shares in publicly dealing gold. This allows you to gain profit from the trades made on gold. In other words, you get paid in the form of a dividend. The shares are of companies dealing with gold which can be; gold Mutual Funds, mining corporations, or Exchange Traded Funds. This means that when you buy shares, you own a percentage of the company, which entitles you to profits made by your investment in the gold stocks.
Stocks in Gold Mining Companies: this option involves purchasing stocks in a gold mining company. Gold is a hard mineral to find, for that matter. However, a company’s prowess to find and mine it determines its profitability, as well as the profitability of its stock. Investing in this option depends on your preferred company’s ability to mine gold. You should review the company’s track record to make a more informed decision. As gold is rare, the investment provides a high risk and reward.
Exchange-Traded Funds (ETFs): ETFs are a type of investment that involves securities that you can buy or sell through a brokerage firm during market hours on a stock exchange. ETFs involve a collection of stocks or bonds in a single fund that is bought and sold like a common stock on the stock exchange. Investing in ETFs offers you a chance to diversify your investment through a mix of assets. With this option, you benefit from lower operating expenses, trading flexibility, and tax efficiency.
Gold Mutual Funds: This option allows you to invest in gold directly and indirectly. You invest in mutual funds by purchasing stocks from gold producing, distributing, or mining companies. In short, you can invest in the asset without buying the physical gold. Gold mutual fund investments are usually open-ended and based on units provided by the gold ETF. The price of gold directly determines the value of your investment.
Best Gold Stocks in the Market
Barrick Gold Corp (NYSE GOLD): This Canadian company is ranked among the most valuable. The company has a market capitalization of more than $35 billion. Barrick gold corp owns 14 mines, six of which are tier one gold assets. This means they have a life expectancy of more than ten years on 500 thousand ounces of gold production. This fact ensures one of the most profitable return expectations in the market.
The fact that the company continuously explores and acquires new land for gold mining provides an enhanced chance of continued profitability of stocks purchased under the company. In 2020, the company generated $12.515 billion in revenues, with the annual production being 4.8 billion ounces. The company’s yield on the stock has averaged 1.04% in the last five years. The company’s performance also enhances liquidity as more than 14.5 million are traded on an average trading session.
Newmont (NYSE:NEM): This company is ranked among the largest gold mining companies in the world. The company owns 22 mines. Ten are dedicated to underground mining, while the other 12 are for surface mining. The company prides a market cap of more than $47 billion.
The company also actively searched for new sites for mining development, ensuring continued profitability. In 2020 the company generated revenues worth $11.479 billion with a production of 5.9 million ounces. The company stocks yielded dividends averaging 1.21% in the last five years, with highs of 3,11% to a low of 0.24%.
Kirkland Lake GOLD (NYSE:KL): This is also a mining company that operates internationally with gold mines in Canada and Australia. The company owns three high-quality mines that have contributed to its ability to pull more than one million ounces from the ground. These company’s stocks are attractive to income investors as they have managed to pay quarterly dividends without fail since 2007.
In 2020 the company generated revenues amounting to $2.46 billion. In the same year, the company produced 640,467 ounces of gold. The company claims to trade 1.5 million shares on an average trading session. In the last five years, the stock yields ranged from 0.24% to 1.96%.
Looking at the examples of the most profitable stocks, it’s easy to note that most of the best-performing stocks relate to gold mining companies. These companies take the bulk of the top ten rankings with a high possibility of returns on your investment. To answer the question, which gold stocks to buy now?.
I would recommend you consider stocks related to mining companies. However, the profitability of these stocks is based on various factors, including; the specific company’s operation, among other factors. As much as these stocks promise value addition, it’s also wise to do further research on the company stocks you wish to invest in to make a more informed decision.
One resource I always recommend for gold stocks, mining, and investment in general is the Capitalist Exploits main service, however, they also got a free newsletter that might be very valuable as well. I would recommend that you check those guys out and sign up to their newsletter, and if you are serious about things, then their paid service is a must, the price for it is very undervalued I would say… especially when you look at the value it brings.
I hope you found this short article on the best gold stocks to be helpful and that you now have a better overall view on your purchasing alterniatives. Please feel free to share this article with anyone you think might find value from it!
Thank you for reading!
Glanz, investor and team member at Gold Retired.