Wars throughout history have been waged over it.
Scientists and archaeologists are still finding hoards of gold coins stored by Roman families from thousands of years ago.
Gold has been the proven substance of value for millennia.
It remains a great investment for long-term wealth protection and the best-performing asset of the 21st century, with an average return of 15% per year over the past 10 years.
And it will continue to be an essential “fear asset” for what is yet to come.
From the war in Syria and the fight against terrorism to accusations of wiring tapping and the rise of President Donald Trump, uncertainty has always had a negative impact on most liquid assets.
Gold is the best insurance policy against any worst-case scenario, such as currency devaluation, war, or any other civil strife.
There are many ways to invest in the shining yellow metal, whether you’re hedging against the impending inflation of the U.S. dollar or simply diversifying your investment portfolio.
The most popular ways to add gold to your portfolio are through buying physical forms as bullion or coins, gold mining stocks from small to large, or exchange-traded funds (ETFs).
Physical Gold
Physical gold can be purchased in two forms: bullion or coins
For generations, it has been prized for its concentrated value, ease of storage, and ability to be transported.
Historically, bullion has been one of the most convenient ways to own gold. Back then, it served as protection from economic disasters.
It serves the same purpose today.
Bullion can be found in the form of gold bars, also known as ingots, or as gold rounds of various sizes and styles.
Gold rounds are typically struck like a coin in one troy ounce. Although not nearly as common, smaller and larger sizes do exist.
All types of bullion, whether in bars or rounds, have a few things in common.
Bullion is considered a fungible commodity, which means it can be replaced by another identical item.
It conforms to a standard of uniformity by having its gold weight, gold purity, and either its manufacturer or issuer clearly stamped on the bar or round.
Bullion without guarantee of weight and purity should be avoided.
It is best to purchase bullion through reputable firms such as Johnson Matthey, PAMP Suisse, Credit Suisse, Valcambi, Sunshine Minting, the Perth Mint, Engelhard, and Modern Coin Mart.
On the other hand, coins are usually the best and most common ways to buy physical gold today.
Coins come in an array of weights and sizes. Most common weights include 1/10 ounce, ½ ounce, one ounce, and larger.
The safest way to buy coins is through a reputable mint.
For example, one-ounce American Eagle gold coins can be purchased through the U.S. Mint. Other trusted mints around the world sell comparable coins, such as Canadian Maple Leafs, Australian Gold Nuggets, and South African Krugerrands.
For those who are interested in buying coins, it’s important to know there are two distinctively different markets: bullion coins and numismatics.
Bullion coins reflect gold’s market value, called the “gold spot price.”
Numismatic coins are essentially collectables. They can also have their own premiums depending on rarity and condition.
Whether you’re a gold buyer for investment or collection, it is imperative you protect and secure your investment.
Gold is a soft metal, which means it can be marked or damaged very easily. Marks can greatly affect value.
“Keep them in a case. I always recommend the cheapest way, the best way, is to get a safety deposit box. It won’t get knocked around, and you don’t have to worry about fire or burglary. When the time comes, you stick your key in, take you coin out and sell it,” says Pete Thomas, senior vice president at Chicago-based Zaner Precious Metals.
There’s something to be said about being able to hold your wealth and your insurance in the palm of your hand.
Thomas goes on to say, “If I’m holding it in my hand, someone else can’t pledge away what I own. It won’t disappear. It’s the rock-bottom security that what’s in my hand has a value and has had a value since the time of Tutankhamen. Thirty-five hundred years is a pretty good track record for me.”
I have to say thousands of years of proven value and security would be a pretty good track record for me, too.
Gold Mining Stocks
When investing in mining stocks, you don’t own the physical gold that is extracted from the mines.
Instead, mining companies provide growth opportunities that soar way above rising gold prices.
For example, in 2016, gold prices increased 8.4% whereas the Market Vectors Gold Miners ETF (NYSEArca: GDX) ended the year up nearly 50%.
Let’s break it down.
Hypothetically, if it costs a company $700 to mine an ounce of gold, and gold is selling at $1,000 per ounce, that’s a $300 profit right off the bat. Let’s say gold prices rise to $1,200. Then the profit becomes $500, and so forth. That’s a 66% increase in profits off a 20% price rise.
Larger and proven successful mining companies are less risky than their junior startup counterparts.
The history of junior mining companies posing as “shell” fronts for scams is notorious. Remember the recent Bre-X scandal? Even after years of litigation, investors were left with over $6 billion in losses.
Not all are out to steal your money, but do your due diligence before investing in any mining company.
If your risk tolerance is quite broad, check out these small mining companies: B2Gold Corp. (TSX: BTO), Pretium Resources Inc. (NYSE: PVG), IAMGOLD Corp. (NYSE: IAG), Alamos Gold Inc. (NYSE: AGI), and Endeavour Mining Corp. (TSX: EDV).
They hold promise for having a profitable 2017.
However, if your ability to stomach risk is not that extreme, the following larger companies have been proven profit earners: Goldcorp Inc. (NYSE: GG), Yamana Gold Inc. (NYSE: AUY), Agnico Eagle Mines Ltd (NYSE: AEM), Barrick Gold Corporation (NYSE: ABX), and Newmont Mining Corp. (NYSE: NEM).
Identifying any good mining stock takes time and thorough research.
A basic rule of thumb goes: if they make money, you make money. But there is a lot more to be considered before investing in this industry.
Most mines are located in hostile environments. So, look for a company that can successfully navigate the complicated and expensive environmental concerns of the mining process, including all of the political risks.
Examine the company’s current cash position and its outstanding debt. It takes a large amount of inflowing capital to maintain operation, so its balance sheet has to be sound and sturdy.
The safest bet is to look for mining companies with solid track records, effective management, and prudent expense management when seeking to enhance your portfolio’s potential.
ETFs
This form of “virtual gold” can be traded on the stock market like an ordinary stock, but it is a basket of many gold stocks.
Exchange-traded funds, more commonly known as ETFs, are the best way to access a wide variety of stocks that you may not otherwise be able to afford.
It’s a great way to take advantage of the volatility of the precious metals market without having to directly get involved in commodities trading.
They give traders access to the percentage price movements of physical gold, without having to buy the physical commodity or futures contracts.
ETFs track physical gold, mining companies, gold bull, gold bear, etc.
They’re typically structured as trusts.
In this fashion, they hold a certain amount of gold for each share of the ETF that is issued.
Buying a share means owning a portion of the gold held by the trust.
Three of the biggest gold-backed ETFs include: SPDR Gold Trust (NYSEArca: GLD), which is the largest and most popular ETF backed by physical gold, with total in trust of over $30 billion; iShares Gold Trust (NYSEArca: IAU), with net assets of $7.58 billion; and ETFS Gold Trust (NYSEArca: SGOL), with assets under management of $960 million.
ETFs are very simple and straightforward. The trust holds the gold and issues the shares.
It’s not quite the same as owning physical gold and stashing a cache of gold coins in your basement for a rainy day, but it’s just as effective at protecting wealth.
Consider it indirect gold ownership.
That’s all for now.
Until next time,
John Peterson
Pro Trader Today