How do I invest in gold stocks? Is investing in gold stocks the best approach to gaining exposure to this very valuable precious metal? In today’s article, we shall deal with these two questions as we seek to establish how you can get started with gold investments today, based on the knowledge shared. Read on till the end to find out more.
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Introduction to investing in gold stocks
Investors can gain exposure to gold by investing in the stocks of gold mining companies. Gold mining company stocks are usually expected to collate with the prices of gold in the market. It is worth noting, however, that the growth and expected returns from the gold stocks are to a great extent dependent on the expected future earnings of the company in question. The value of the gold that the company mines and the spot price of gold do not influence the stock prices exclusively.
When investing in gold stocks, therefore, you need to collect sufficient data about the mining company, including:
- How effective their leadership team is.
- Their production costs.
- Their reserves
- The expanse of their gold mine exploration project/project development approach.
- Their hedging activities
Investors who are active in the precious metal industry are at times seen to invest in gold and gold mining company stocks, though this calls for a lot of research.
The gold mining sector currently has more than 300 mining companies that are listed and publicly traded. The market valuation of these firms ranges from the micro-cap ones to those macro-cap ones that have a market capitalization of more than $10 billion.
There are also some established gold stocks indices that offer benchmarks of the performance of the gold mining company stock performance prices, including:
- NYSE Arca Gold BUGS index
- S&P/TSX Capped Gold Index
- FTSE Gold Mines Index
- Philadelphia Gold & Silver Index
Value investing for gold stocks
Value investing refers to a factor-based investing approach that involves picking stocks that you believe are currently trading for way less than what they’re intrinsically worth. You can determine this by measuring the ratio of that stock’s price to one or several business metrics.
One widely accepted metric is the Price-to-earnings ratio, which is abbreviated as (P/E Ratio). Value investors know that if a firm is cheap in comparison to its intrinsic value, in this case, as measured by the P/E ratio, then it is highly likely that the stock prices may rise faster than the other stocks as the price adjusts to get in line with the company’s worth.
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Some gold value stocks worth considering
The information available on the best stocks that one can pick as a value investor changes with time, so the stocks recommended below may not be the best options in a years’ time.
Sibanye-Stillwater Limited (SBSW)
This is a South-African-based mining company that develops mineral properties. This company has a diverse portfolio comprising of:
- Platinum properties in the U.S. and South Africa
- Gold projects in South Africa
- Several coppers, gold, and platinum exploration projects are based in North and South America.
- Lithium hydroxide project based in Finland.
Sibanye-Stillwater is quite popular in the precious metal industry owing to its production capabilities that are best reflected in the way it ranks very high in various sectors, including:
- It is the largest primary producer of platinum on a global scope.
- The second-largest producer of palladium
- Third on a gold-equivalent production basis
This company is expected to close deals involving the purchase of nickel and copper mines in Brazil ( Santa Rica and Serrote), for about $1.0 billion (cash).
Gran Colombia Gold Corp ( GMC.TO)
This is a Canada-based mid-tier producer of gold that has a couple of operations in Latin America. It boasts of being the largest underground gold and silver producer in the whole of Colombia. This firm owns several operates several high-grade mines in Segovia, and is currently developing its Toroparu project in Guyana where is has several mineral projects. In addition to that, this company has shares that are currently trading OTC in the U.S., under the ticker TPRFF.
Equinox Gold Corp
Equinox Gold Corp is one of the popular Canada-based multi-asset mining firms that have their operation within the Americas. It currently has a variety of gold mines spread out throughout:
This company is expected to hit over one million ounces of gold annual production. It also has shares that trade under the ticker EQX on NYSE Arca based in the USA.
Is investing in gold stocks the best approach to investing in gold?
The answer to this question is highly dependent on your objectives as an investor. The performance of the gold stocks is influenced by the performance of the mining company in question. This means that you can benefit from a company having a great leadership team and an impressive balance sheet, regardless of the state of price trends of physical gold in the market.
Effectively speaking, gold stocks are like most of the other stocks in other industries. They carry with them the massive potential for growth (with the growth of the mining company), but they are also prone to substantial price declines in the event of the occurrence of a major global economic crisis.
If you are an investor who is looking for safety, then you should purchase physical gold (gold bars and coins). Physical gold is perceived as a hedge against inflation, and as you know, inflation is currently on the rise. To shield your portfolio from the effects of the declining U.S. dollar, you should also purchase physical gold.
Bottom line, if you are looking for investments with massive growth potential (note that they also come with massive potential for losses), then you should purchase gold stocks. If you are, however, looking for safety, then physical gold should be your go-to option.
Here are some gold IRA companies worth considering if you want to invest in gold through an IRA (N.B. Their IRA experts can assist you to roll over the funds in your current IRA to your newly created gold IRA):
See Gold Retired’s Top-5 Recommended Gold and Silver IRA Solutions
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That will be all for this article in which we have addressed the question “How do I invest in gold stocks?”. I hope you found this article helpful. If you have any questions with regards to how you can invest in gold (and silver), drop them in the comments section so that I can get back to you ASAP.
I wish you well,
Eric, Investor and Team Member at Gold Retired!
I have always wondered about how one would go about investing in gold, and what the best way to do that would be. I found this article to be very informative and balanced, and it was helpful in learning some of the ways I could invest in gold. I didn’t know that investing in gold stock, as opposed to other methods of investing in gold, depends upon one’s objectives. That was an important point for me.
Currently, I am not in a position to invest in anything, really. My question then, is when would someone be in a financial position to justify beginning investment in gold? Is there a certain threshold one should meet before they begin investing in it, or does it really matter?
First of all, thank you for your comment!
Happy to hear you found the post helpful and informative.
About your question, I would say that ANYONE, no matter the investment capital should atleast have some smaller amounts at home, why not some gold & silver coins atleast, can be the only way to buy in a cathastrophic event, for example in an inflation scenario.
Hope that makes sense?
Thank you again for your comment!