A Quick Overview Of Gold — And How To Invest In Gold Mining Stocks…
Gold has never been just an ordinary metal. For starters, it’s one of the rarest metals on Earth.
Estimates of gold’s actual rarity vary. If you search for estimates, you may come across an interesting anecdote. Supposedly, all of the gold ever mined could fit underneath Paris’ Eiffel tower, forming a cube of just 60 yards on each side.
Whether that’s true or not, one thing is certain. Gold’s rare status has afforded the yellow metal a unique place in the history of civilization. For at least the past 6,000 years, through the rise and fall of countless great empires, man has used gold as a medium of exchange. — a sort of universal currency. This has been just as true in modern times — the U.S. used gold to back up the dollar until as recently as 1973, pegging the price of gold at $35 per ounce.
The U.S. has been off the gold standard for nearly 50 years now. But it hasn’t lost its status as a store of wealth. It hasn’t lost its reputation as a hedge against inflation, either.
In times of economic uncertainty or when inflationary pressures build, investors tend to buy gold and gold mining stocks as a hedge. Also, thanks to gold’s status as a currency and universal store of wealth, the yellow metal often rallies when the U.S. dollar falls in value.
Ways To Invest…
Thanks to recent financial innovations, investing in gold has never been easier or more accessible.
If you’re looking to simply gain exposure to physical gold, exchange-traded funds (ETFs) like the SPDR Gold Shares ETF (NYSE: GLD) are an easy option.
Gold mining stocks are also a logical choice for investors. Not only do they offer a portfolio hedge during uncertain times, but they can also offer significant appreciation potential. That said, it’s worth highlighting a few key negatives about the gold and silver mining industry:
– Gold mining is a commodity industry. Miners must sell gold at prevailing market rates (or enter into contracts to sell at predetermined prices in the future). So there is no way to establish a competitive advantage or secure any product differentiation. Commodity industries like this are usually exposed to extreme cyclicality, and it is difficult for firms to gain an edge over the competition.
– Many of the lowest cost, easiest-to-mine reserves have already been exploited over the past several decades. As a result, miners are increasingly forced to expand into more politically unstable markets or employ more technologically advanced mining techniques to mine precious metals. This has led to rising costs.
– Gold miners in some countries have had trouble keeping their costs down and have remained unprofitable or only marginally profitable despite a significant rise in commodity prices. One reason is that gold is priced in dollars but incur expenses in their local currencies.
With that said, let’s briefly discuss ways you can invest — and potentially profit…
How Profit With Mining Stocks
If you’re looking to simply gain broad exposure to the gold miners, ETFs and mutual funds are the way to go.
Many of these funds have exposure to mining stocks listed in countries like South Africa and Australia. These markets can be tough for individual investors to access. Moreover, mutual funds specializing in the industry are often actively managed. And the best fund managers are well equipped to know which miners offer the most significant potential.
We like the VanEck Gold Miners ETF (NYSE: GDX) for a simple broad-exposure option.
As for individual stocks, there are a plethora of small, fundamentally weak miners with unproven reserves. These companies are collectively referred to as the “junior” gold miners. Many of these stocks have little to no revenues and are more or less exploration firms with shaky prospects. These stocks can offer tremendous upside for investors who are comfortable with risk.
With that said, we think most investors are better off sticking with the industry heavyweights. Or, at the very least, investing in miners with some proven production potential. The table below lists a handful of the larger and more respectable gold and silver mining firms.
Remember, this is just a simple screen for profitable mining firms with significant market caps that are easily accessible for U.S. investors. But it should help you in your search for gold mining stocks with significant upside.
You could also turn to our colleague Dr. Stephen Leeb, who recently discovered a company that is sitting on what could be the largest gold deposit ever discovered…
According to Dr. Leeb, gold could soon soar past its all-time high of $1,917 an ounce – which is great news if you currently own any physical gold… and even better news if you own gold stocks.
Recently trading at around $9 a share – this pick could allow early investors to make 20-times their money… maybe more.
To read all about his newest research on this company’s massive gold discovery, click here now…