Putting some gold into your portfolio doesn’t mean you have to stash bullion bars or hide a cache of coins in the cellar. Many investors prefer to take an indirect approach and invest in the stock of gold mining companies. Here are some key points to consider when taking this approach:
- Gold mining stocks are easily bought and sold. If a cash need presents itself, you can sell your stock immediately. Physical gold and gold coins may not be quite as easily traded.
- You’re buying a company, so there is the potential for additional upside – but of course, downside risk, as well.
- It takes a lot of money to develop and run a mine, so you want to look for a miner that had deep pockets and a sound financial record.
- As with gold itself, gold mining stocks can experience huge price swings. Patience is key.
Mining a money making miner
Identifying a good gold mining stock can take quite a bit of research. You’re looking for a value-plus proposition. In other words, if the price of gold goes up, you want your miner stock to offer a 1x plus gain. Without that additional profit potential, you might as well simply make a straight gold investment.
You’ll want your gold mining company to have particular qualities.
Effective management – The more “skin in the game” they have, the better. Ownership and management that has a vested interest in the success of the company helps protect your investment. The theory goes: if they make money, you make money.
Environmental costs and political risks – You are looking for a company that can navigate the complicated and expensive environmental concerns of mining, as well as the political risks. Let’s face it, gold mining is not a cushy job in a modern plant. This business is often located in hostile environments, including physical risk.
Ability to obtain financing — You want to examine a miner’s current cash position and outstanding debt. Gold mining companies require constant infusion of capital to operate, so their balance sheet has to be hardy.
Panning for profits
Gold mining companies with solid track records, effective management and prudent expense management can enhance your portfolio’s potential. But a prudent investment in this sector will require research above and beyond what is required to analyze a typical stock.
Just like panning for gold, finding a valuable nugget can take some time and effort, but when you do locate a gold mining stock of value, you’ll know it’s been worth the effort.
The outlook for commodities in 2017 is strong, continuing the gains of 2016. Here is what investors can expect for precious metals, industrial metals and energy.
Gold has has edged lower over the last couple months, but this is expected to change when the new President Trump starts implementing his policies. These are the best gold stocks to benefit.
Even if you aren't a "gold bug," there is a valuable place for gold and precious metals in your portfolio. Learn which gold ETFs are the best ones.
Massive U.S. infrastructure projects planned by the Trump administration are putting the spotlight on copper investments. Here are the copper ETFs and stocks to watch.
Gold has recently sold off, and a number of other factors are lining up positively, adding to the reasons it might be the right time to buy gold. But how should investors play it?