How to Invest in Gold? Star Stocks and ETFS
On Friday, February 12th, the price of gold rose by more than 1.3%, the biggest increase in the past four months.
This moving price signal is usually a good time for us to pay attention to an asset class. As one of the investment categories, gold is usually famous for its value storage means such as avoiding risks and resisting inflation. Under the background of tense regional political situation and high inflation in Europe and America, it is a good time for gold to come on stage. Personally, the following comment is a good analysis of some factors in the current gold price game:
Also on Friday, February 12th, the yield of 10-year US bonds rose above 2% for the first time in two and a half years, which put some pressure on the rise of "interest-free" gold. On the other hand, the price of crude oil is also rising, and the hidden worry of inflation is unabated.
Risk aversion and falling real yields should boost gold prices, but a stronger dollar may hinder further gains in gold prices. On the other hand, rising crude oil prices may aggravate investors' concerns about inflation and economic growth, which may further push up gold prices.
It is so changeable and complicated that it has never been a single factor rising in a straight line. And this article wants to analyze the ways of investing in gold for tiger friends. In addition to trading gold futures directly,$(GCmain)$, can also participate through industry ETFs and high-quality companies.
I. Gold-related ETF
The best gold ETFs are:
Here's a closer look at each of these top gold ETFs:
1.SPDR Gold Shares
The largest and mostliquidgold ETF is the SPDR Gold Shares. It's the gold standard for investors seeking direct exposure to the price of the yellow metal. The ETF's sole assets are gold bullion, which it stores in secured vaults.$:SPDR Gold Shares(GLD)$
Investors pay a premium for this particular gold ETF. It has a higher expense ratio compared to other ETFs that own physical gold bullion. However, it's still relatively cheaper than the cost of shipping, insuring, and storing gold bars and coins, especially when factoring in its liquidity. Its large size makes it a favorite of institutional investors such as pension funds that use it to hedge againstinflationand other risk factors.
2.iShares Gold Trust
The iShares Gold Trust is almost identical to the SPDR Gold Shares. That makes it another great way to invest directly in gold.It also boasts a lower expense ratio than its larger rival.$:iShares Gold Trust(IAU)$
Owning shares in this ETF is a great proxy for owning physical gold without the hassle and expense of storing or insuring bars and coins. The ETF handles these items, storing its bullion in the London branch of $:JPMorgan Chase(JPM)$ . Overall, this gold ETF has done an excellent job of tracking the price of gold, with only a minor underperformance due to its expense ratio.
3. VanEck Vectors Gold Miners ETF
The VanEck Vectors Gold Miners ETF is the largest ETF focused on holding shares of majorgold stocks. That makes it the best gold ETF for those who want to invest in mining companies as a way to play the gold market.$:VanEck Gold Miners ETF(GDX)$
Shares of mining companies can outperform the price of gold. That's because they can benefit from the dual catalysts of production growth and a rising gold price. However, owning mining stocks is riskier than investing directly in gold. That's because cost inflation and other factors can cause underperformance.
As of September 2021, this gold ETF held shares of more than 50 gold mining companies. Its top holdings included the largest gold mining companies in the world bymarket capitalization, led by the following five:
- $:Franco Nevada Corp(FNV)$
- $:Wheaton Precious Metals(WPM)$
These are some of the largest gold companies in the world. The market cap of the largest mining company on this list is $51 billion. Overall, these top five holdings make up more than 46% of this gold ETF's assets, led by Newmont at more than 15%. That gives investors greater exposure to the world's largest gold mining companies, making this ETF ideal for investors seeking quality over quantity.
II, The gold mine company
Although the GDX mentioned above can already track mining companies, you may want to invest directly in their stocks. This article briefly summarizes the stocks of two gold mining companies:
1. Barrick Gold Corporation
Barrick Gold is striving to be the most valuable goldmining companyin the world. The Canada-based company focuses on operating Tier One mining assets, which Barrick defines as:
- Able to produce more than 500,000 ounces of gold per year.
- Having at least 10 years of productive life remaining.
- Featuring low-cost operations, as defined by total costs per ounce.
By focusing on operating large mines with significant remaining resources, Barrick can produce gold at a relatively steady pace for years. The company expects to produce an average of about 5 million ounces per year through 2030.$:Barrick Gold Corp(GOLD)$
Barrick also forecasts that its all-in sustaining costs will decline in the coming years from roughly $1,000 per ounce in 2020 to around $800 per ounce by 2025. Because of its focus on reducing costs, Barrick’s profits should continue to rise even if gold prices modestly decline.
Barrick complements its top-tier gold mining portfolio with a strong balance sheet. It has focused on paying down debt over the past several years throughfree cash flowand the sale of non-core assets. As a result, the company has reduced its interest costs. Its increasing financial flexibility and strength enables Barrick to pay a growingdividend.
2. Franco-Nevada Corporation
Franco-Nevada is a Canada-based streaming and royalty company. It has adiversified portfolio, with agreements tied to gold,silver, the platinum group metals (PGMs), iron ore, andoil and gas. In the second quarter of 2021, 56% of its revenue came from gold.$:Franco-Nevada(FNV)$
A major benefit of Franco-Nevada's focus on royalties and streaming is that it reduces risk. It doesn’t face the capital and operating cost overruns that have historically plagued mining companies. At the same time, Franco-Nevada’s agreements position it to profit as its mining partners complete exploration and expansion projects.
Franco-Nevada's streaming and royalty contracts provide it with the ability to generate lots of cash by selling the physical commodities it receives. That cash flow enables it to invest in new deals and pay a dividend, which the company has increased each year since itsinitial public offering(IPO) in 2008. The company also boasts a debt-free balance sheet -- a rarity in the mining industry -- giving it even more financial flexibility to invest in new royalty and streaming agreements.
Because Franco-Nevada can profit from gold mining without exposure to the risks of mine development, its stock has historically outperformed the price of gold and other gold mining stocks. All of these factors make it ideal as a gold mining stock.
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