The Basics Of Gold Stocks

gold-precious-metalsThe value of gold consistently and predictably rises over time, helping investors net significant returns investing in both actual gold and gold stocks

There are three basic ways to invest in gold: you can own the metal itself, purchase it through a mutual fund, or invest in goldmining stocks. Gold has long been used as a hedge against the dollar’s constant value fluctuation, as it is acknowledged by governments around the world as a tangible counterpoint to fiat currencies that can rise and fall as a result of external influencers. Future growth is going to be seen in gold, and those that can intelligently invest their dollars in one or more of the gold options listed above will see profits that will likely outpace the blue chip group.

There are several ways to invest in gold, including the option to purchase the metal itself, and each presents its own risk/reward scenario.

Junior gold stocks: This option is likely the riskiest, if you’re looking to purchase gold stocks, as a junior stock refers to a mining operation that doesn’t already own a productive mine. These companies may be simply exploring sites. The investment is truly a risky bet against much tougher odds. If the gold exploration entity does find a productive site, the returns can be in the triple digits. You just have to be prepared for the risk.

Gold options and futures: This option is better left to more experienced investors as the potential for losses is real if not played appropriately. Buying options can be risky, with more than 75% of options purchased expiring with no positive movement. Leverage is another factor to consider when purchasing options and futures, but it is a double-edged sword. On the one hand, you can control a lot more stock than you might think, but you can also lose a lot of money in a short amount of time. Best to leave this one to the veteran, experienced traders.

Gold exchange-traded funds: This popular gold investment option, generally referred to as an ETF, operates as a mutual fund that trades on a stock exchange similar to an ordinary stock. The ETFs traded in the U.S. contain gold bullion, nothing else, and offer a realistic and practical way to invest in gold. Their downside is that they are still paper assets. The first gold ETF was traded in 2003 on the Australian Stock Exchange, and the SPDR Gold Shares is now the second largest ETF in the world in terms of market capitalization.

While investing in gold often involves investing in companies that are related to the gold industry, the other option that many investors are taking advantage of today is direct ownership. Possessing gold, stored on your premises or housed in a depository (a better idea in most cases), represents a smart and safe way to hedge against currency devaluation and market turmoil. The best way to possess actual gold is through a gold IRA, for more information on gold IRAs click here.

An important consideration to make when considering an investment in gold industry stocks is that this group is generally more volatile than the price of gold itself. Mines are susceptible to interruptions and damage from natural disasters and political episodes, while the profitability of the mine at any given time can influence overall production, further triggering volatility in the price of the gold mining company’s stock.

Safety and stability are often found when investing in physical gold. Take time to explore all options when it comes to a gold investment and gauge the risks and rewards of each.

Although the information in this commentary has been obtained from sources believed to be reliable, American Bullion does not guarantee its accuracy and such information may be incomplete or condensed.  The opinions expressed are subject to change without notice.  American Bullion will not be liable for any errors or omissions in this information nor for the availability of this information.  All content provided on this blog is for informational purposes only and should not be used to make buy or sell decisions for any type of precious metals.