Gold Stocks
Mining companies: These are the companies that mine and sell wholesale gold. Gold streaming and royalty companies: These companies pay upfront fees to mining companies in exchange for a percentage of the mine’s revenue or the right to purchase its future production at a fixed wholesale price. Gold-focused ETFs: These exchange-traded funds own either physical gold or shares of gold mining companies. There are many benefits to buying gold stocks instead of the physical metal. Gold companies can likely generate higher total returns than simply an investment in physical gold because, when the price of gold rises, these companies can expand their operations and their profits. This growth should enable their stocks to outperform the price of gold.
But not all gold stocks outperform the price appreciation of the precious metal, which means that investors need to choose their gold stocks carefully.Gold has long been regarded as a safe haven in times of market turmoil. Many investors have gained exposure to the precious metal by buying stocks of companies engaged in exploration and mining. Some of the major players in the gold industry include Canada-based Franco Nevada Corp. (FNV), Newmont Corp. (NEM), and Australia-based Newcrest Mining Ltd. (NCM). Also known as paper gold, gold stocks are similar in function to any other stock you would buy—you’re investing in a company on the hope that they’ll succeed and your investment will compound. With gold stocks, you’re investing in a company that specifically has ties to gold, so theoretically your investment should mimic the price of gold, not necessarily the stock market. So when the stock market crashes, your gold stock investment should be safer.
TYPES OF GOLD STOCKS
GOLD ETFS
If you invest in a gold exchange-traded fund, you won’t actually own any physical gold. Instead, you’ll be investing in assets that are backed by gold. If you don’t want to mess with a precious metals IRA that requires storing physical gold, a gold ETF is a great option that generally mimics the price of gold.
GOLD MINING STOCKS
Gold mining stocks are another option if you don’t want to have physical gold. These stocks are investing in companies that mine gold, so they often follow the price of gold. However, these stocks are also subject to fluctuations in the business itself—when it’s poorly managed, the country is in turmoil, the mining isn’t successful, or the workers go on strike, your investment could suffer.
GOLD CERTIFICATES
Gold certificates aren’t technically stocks, but they represent an investment in gold that doesn’t include holding physical gold. Essentially, you receive a piece of paper that indicates you “own” a specified amount of gold that is not in your possession.
Gold certificates are less popular today because the US dollar is no longer backed by gold, although some places still distribute them. Keep in mind that if the company associated with your certificate goes bankrupt, your certificate will be worthless.