If you’re looking for investments that are highly lucrative, investing in gold stocks is a good option. Unlike other markets that are subject to the rise and falls of the stock market, gold has remained historically favorable. From November 2007 – June 2009, the S&P 500 index saw a significant decrease, dropping by 36%. On the contrary, the price of gold actually rose by 25%.This is because gold is a safe-haven investment, and during times of economic downturn, investors seek out opportunities to invest in it. There are several options for individuals to get involved in gold stocks. The optimal investment choice depends on the needs and goals of the investor. However, if the investor does their research and invests properly, gold stocks can be astronomically profitable.
Types of Stocks
There are two ways of investing in gold stocks – through direct and indirect exposure. As the name suggests, direct exposure gives the investor direct ownership of gold. Indirect exposure, on the other hand, allows the investor to invest in the various agencies involved in the gold industry.
Gold ETFs – Direct Ownership
Gold exchange traded funds (ETF) purchase gold on behalf of their shareholders. This allows investors to directly own gold while also providing a liquidable asset, since gold ETFs are traded on the stock exchange, unlike physical bars of gold. However, like physical gold, gold ETFs are usually a safe investment.
Gold Mining Stocks – An “Active” Investment
Many investors choose to invest in gold mining stocks instead. This is because gold mining companies are able to grow exponentially in size and could potentially be even more lucrative than other forms of gold investment. Consider this, an ounce of gold will always be an ounce of gold. True, the price of gold may change through inflation and changing market conditions, but this increase is unlikely to experience a drastic change in a short period of time.
Gold mining stocks, on the other hand, may see an investment double or triple overnight. Gold mining stocks, more so than any other gold stock, require a great deal of “active” investing. What this means is that the investor has to actively stay on top of the developments of their investment. Gold mining can be one of the most results-driven markets around, and the worth of a particular investment may depend on how many resources are found. It is important for investors to do their research and look for companies that fit their needs. Different companies offer different benefits. Of particular note are small-cap gold mining companies, which are less established companies with the highest ceilings for growth.
The other benefit to gold mining stocks are that they have the potential to become profitable through other finds. Even if a mine does not find gold, it may discover a wealth of other precious resources. This will have a similar effect in significantly increasing the value of shares.
Gold Mining Mutual Funds and ETFs – Portfolio Diversification
Stocks in gold mining mutual funds and ETFs are another way for investors to indirectly invest in gold. These options are ideal for investors who want to have a diverse portfolio and through a one-time investment. In addition, since these mutual funds and ETFs are involved with multiple companies, there is a lesser need for investors to be as active.
Many ETFs and Mutual Funds that track gold mining companies may also track other precious metals. This may be a deterrent for those who wish to solely invest in gold, but it may prove to be profitable and help minimize loss through increased diversification.
Streaming and Royalty Companies – An Excellent All Around Option
Investors can also purchase shares in gold streaming and royalty companies. These companies pay mining companies a fee upfront for the right to purchase gold and other precious metals from their mines in the future.
These types of companies benefit shareholders since they provide widely diverse portfolios and mitigate some of the risk from directly investing in mining companies, since they are impacted less by unsuccessful mining operations. They also provide wide margins that are more stable when the price of gold begins to drop. Finally, their value also increases with gold prices, since these companies make their revenue through selling the gold they purchased from mines.
However, most royalty and streaming companies do not work with only gold. These types of companies will often have other added resources that they deal in. Some common exposures include silver, oil and gas. Thus, it is important for investors to know the target audience and markets of the company they choose to invest in.
There are many options to get involved in gold stocks, and they can all be highly profitable. Investors should pick the option that is most suitable for them. No matter which option you pick, gold and gold mining stocks are a lucrative addition to any portfolio.