With the rising inflation, it only makes sense to evaluate your investment portfolio and assess whether your retirement savings can keep up with global financial changes. Owning gold is historically considered a safe investment choice due to its purchasing power that doesn’t suffer as much as some fiat currencies. However, maintaining physical assets can be a burden.
Buying gold on the stock market, on the other hand, has its unique benefits to many investors. Some of them include the obvious protection against inflation, high liquidity due to the high demand for gold, and portfolio diversification that prevents you from keeping all your money in one place.
When buying gold stocks, rather than physical gold, you’re essentially investing in a company that either owns or mines gold. This means you save up money on storing and insuring gold and leave costly inconveniences to the company tied to your investment.
Having the flexibility and control over which company you decide to invest in is an advantage many investors seek, yet many aren’t sure how to take their initial steps. Fortunately, we will guide you through the most important aspects of this process.
Key Takeaways
- Purchasing gold stocks provides investors with an inflation hedge while removing the necessity to cover the costs of gold storage and insurance.
- Gold stocks aren’t a risk-free investment – however, you have control over which company you want to invest in.
- The value of your gold mining stocks may depend on how the company is operating rather than the price of a bullion.
- Gold exchange-traded funds offer more liquidity than physical gold and don’t involve fees for storing and insuring physical precious metals.
How to Invest in Gold on the Stock Market
Buying gold stocks is no different than investing in any regular stock – ideally, you start with researching gold-mining companies and their growth over the years and select the ones you favor the most. Your criteria can vary – some take into consideration a company’s yearly performance, while others opt for environmentally-aware companies.
How to Choose a Gold-Mining Stock?
Essentially, gold-associated companies can be categorized into three distinct groups, distinguished by their size and, occasionally, their operational purposes.
Junior Miners
Junior miners are the equivalent of tech start-ups; these companies keep setting up miners as long as they have available funds. Investing in junior miners is usually considered risky since it’s hard to predict how soon the mines will be for digging gold. You can treat it as a stock that involves high risk but may bring high profit if the company succeeds.
Senior Miners
Senior miners are the companies that are up and running. Hence, the risk levels are lower when it comes to bigger companies since their operations are well-managed and proven with time. Although rigid management is associated with guaranteed results, don’t forget that the market price of gold hits senior miners harder than owners of physical gold.
Senior miners can further be classified into those digging the gold and those investing in junior miners.
Gold Streaming Companies
Finally, there are gold streaming companies that don’t set up mines but finance miners, for example, junior companies that often seek funds. Some gold streaming companies offer stocks with dividends as you receive a percentage of the amount of gold retrieved.
As for the value fluctuations, the market price has a big impact on how your stocks perform.
Which Type of Gold Stocks to Invest In?
There are three main types of gold stocks – each of them has its advantages and drawbacks. Hence, diligently assessing each of them will help you identify which type best suits your investing criteria.
Gold ETFs
Purchasing gold exchange-traded funds means investing in assets that are backed by physical gold. Since you won’t actually own gold, you eliminate the necessity to cover expenses associated with maintaining physical precious metal. Gold EFTs can be a low-cost investment for people who just entered the market. Compared to physical gold, gold funds are faster and easier to sell.
Gold Mining Stocks
Similar to the ETFs, purchasing gold stocks means you invest in companies of your choice that mine gold. Although you save up on maintenance, there are associated risks that may devalue your investment. If the company you’ve invested in is in a financial crisis or isn’t managed well, your stocks may suffer.
Gold Certificates
Gold certificates can be indirectly associated with stocks since you purchase physical gold which is not in your possession. Instead of receiving a physical asset, you’re given a certificate that indicates the amount of gold you own.
Gold certificates are the least popular investment option because of the higher risks involved that may devalue your certificate.
How Should I Invest in the Gold Market?
Taking everything into account, if you want to purchase a gold stock, you should find a profitable gold-mining or streaming company and decide whether to invest in stocks or exchange-traded funds. Conducting a thorough analysis of a company’s net profit and overall performance will help you identify investment opportunities that match your risk tolerance and long-term profit projections.
In contrast to physical gold, if you notice a decline in the value of your stocks and decide to sell them, the process is likely to be more manageable, making them an excellent option for beginner investors.
Article Sources
At Gold IRA Blueprint, we dive deep into the world of gold IRAs, using trusted sources to back up our insights. Our sources range from official documents to expert interviews, ensuring our content is both accurate and reliable. We also draw on research from reputable publishers to give you the most comprehensive understanding possible. Check out our editorial policy to see how we maintain our high standards for accuracy and fairness. Also make sure to check out our Financial Review Process to have a better understanding of our process.
- https://www.investopedia.com/ask/answers/06/investingingold.asp
- https://www.royalmint.com/invest/discover/invest-in-gold/an-introduction-to-gold-investment/
- https://www.cbsnews.com/news/what-are-gold-stocks/
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