Investing In Gold Stocks
If you are considering investing in gold then there are many options available to you. You can buy gold in its physical form, for example you can buy gold bars or coins. For more speculative forms of investment you could choose gold derivatives. In addition you can buy gold stocks.
About Gold Stocks
You can purchase gold stocks or shares from companies involved in the gold industry and most commonly this will be from gold mining companies.
At its most basic level the value of gold stocks rise in accordance with the price of gold. But there are other factors too that contribute towards this rise:
The management strategy pursued by the gold mining company; the competence of the management; the quantity of gold available in the area where it is mined and the economical/political risks taken by the company are also important factors.
Since you will be buying these stocks from individual gold mining companies you should do some research into each one before buying. You should also make a careful analysis of the gold mining/trading market and the companies involved in it. As well as conducting your own research you can seek expert advice. Once you are satisfied with your findings you can go to the next stage of deciding how you’re going to buy the stocks.
Buying Gold Stocks
Choosing a Broker
In order to buy these stocks, or any stocks and shares for that matter, you need to open an account with a broker. This starts with research too. If you intend to buy only gold stocks then try and find a broker who specializes in or at the minimum is experienced in the gold sector.
Ask the brokerage firm if they have a particular representative who specializes in the gold or precious metals sector. If you can find one that does and you can build a rapport with him or her this will help you considerably when researching prospective companies to invest in.
Choosing Your Strategy
Once you have done that you can decide on your strategy for buying (and selling) stocks. You can do this by calling the broker and giving them instructions case by case or you can do it yourself using the broker’s online trading platform. Of course if you prefer the latter you need to make sure that you open an account with a broker who offers that facility.
Stock market investors are always on the lookout for stocks with the potential for a good return. They not only keep an eye on the stock market but also keep themselves informed about the economy and the current political situation. When they feel that things are looking positive they invest in the stocks of companies which they consider to have the best profit potential.
So if you are concentrating just on gold stocks your general market research should be targeted towards how the economic situation is impacting the price of gold. If and when you feel that the economic situation is likely to push the price of gold up you should then direct your research towards companies in the gold sector.
When you buy shares from these publicly traded companies you get the opportunity to ride on the back of the way gold is performing and more particularly on increases in the value of gold. Provided a gold company itself is performing well its value should be pushed up when the price of gold goes up and in such a case the value of your shares will go up too.
The supply and demand factor determines the price of gold. When the economic situation becomes uncertain it results in increased demand for and buying of gold. This drives up the price of gold, the value of the gold company that you have invested in goes up proportionally and with it the value of your shares rises too. So the higher the demand for gold, the more lucrative gold stocks become.
When researching where to buy gold stocks with the most upside potential you need to check out the fundamentals of the individual gold mining companies that you are considering investing in. You have got to satisfy yourself that their share prices will increase whenever there is an increase in the price of gold.
You can do this through technical analysis, through speaking to your broker and through your own general research. Making sure that the company is financially secure is an essential prerequisite.
Exchange Traded Funds (ETFs)
Another option available to you is to invest in gold exchange traded funds rather than individual stocks.
ETFs are funds that track indexes like the NASDAQ-100 Index, the Dow Jones and the S&P 500. Gold ETFs track the gold sector.
Since this fund is not influenced by the performance of individual stocks, any losses incurred by a handful of gold mining companies get absorbed by the rest of the mining companies and therefore you are spreading your risk.
Our overall conclusion and recommendation is that the easiest and less risky way for an inexperienced investor to buy gold is to buy it in its physical form, and more specifically to buy gold coins. When you buy physical gold there are no external factors that can influence the value of your investment other than the market rate for gold.
However if you prefer not to buy physical gold but you still want to have gold as part of your investment portfolio then buying stocks and shares in gold mining companies is definitely an option to consider. These can also be included in a Gold IRA, just as physical gold can.