Caspar Benson
Geopolitical tensions and persistent inflation concerns have sent investors flocking to gold in record numbers, driving prices to new highs above $2,700 per ounce. This surge in buying has attracted Wall Street firms and everyday investors looking to protect their wealth.
If you’re drawn to gold’s performance and protective qualities, you have several ways to participate in the market. While many immediately think of gold bars and coins, gold stocks have become an increasingly popular alternative. These equities offer exposure without the logistics of storing and securing physical metal.
But with gold prices near historic peaks, are mining stocks a smart buy right now? We asked three gold market veterans to weigh in on the key factors to consider.
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Are gold stocks a smart investment now?
“Gold stocks can be a smart investment right now, depending on [your] goals and risk tolerance,” says Brandon Thor, CEO of Thor Metals Group. While they allow investors to tap into the gold market without storing physical metal, they behave differently from gold itself during market shifts.
Below, we’ll explore who might benefit from investing in gold stocks and what risks to watch for.
The case for investing in gold stocks
“Gold stocks are a good fit [if you’re] looking for a more active exposure to gold,” explains Thor. “[They] can offer higher returns [than] owning gold directly, especially if a mining company discovers new reserves or lowers its operating costs.”
Many investors prefer gold stocks because they’re easy to buy and sell on exchanges. “Coins are [an] alternative, but finding reliable, reasonable cost sellers can be a hassle,” emphasizes Rick Miller, financial planner and investment advisor at Miller Investment Management.
Brett Elliott, director of marketing at American Precious Metals Exchange (APMEX), points to this liquidity as a big advantage. You can quickly adjust your positions when market conditions change — whether that’s buying more during price dips or selling some during rallies.
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Drawbacks and risks to consider with gold stocks
“Gold stocks aren’t ideal for short-term investors looking for stable returns,” warns Thor. “If you need more predictable income-generating assets or [are someone who] avoids market fluctuations, gold stocks may not be the best choice.”
It’s worth noting that mining companies must navigate complex governmental and environmental regulations. “The business of gold mining can be difficult to manage and, as a result, can drag down the share price,” explains Miller. To mitigate risk, he suggests researching a company’s track record and management team before investing.
Beyond operational challenges, Elliott highlights that gold mining stocks are impacted by other, unpredictable risks. “If workers go on strike, management makes a bad investment or a hostile government shuts down a mine, you’ll experience the impact on your stock values,” he cautions. Physical gold may be a wiser investment choice if you’d rather not stomach these risks.
Other gold investment types worth exploring
Gold stocks aren’t for everyone. If they don’t match your investment goals, consider these alternative gold assets:
- Gold ETFs (Exchange-Traded Funds): These track gold prices through shares that trade on major exchanges. You can buy and sell them easily through a brokerage account, though you’ll pay annual management fees.
- Gold IRAs (Individual Retirement Accounts): These hold physical gold through gold IRA companies that manage IRS-approved storage. You may benefit from tax-deferred growth, but there’s a higher barrier to entry. Unlike traditional IRAs, gold IRAs have high minimums to account for setup and maintenance.
- Gold bars and coins: Physical and fractional gold gives you direct ownership of precious metals. You don’t have to worry about counterparty risk but secure storage and insurance add ongoing costs.
- Gold mutual funds: These invest in several gold mining companies at once. You get broad exposure to the gold market without relying on a single company. Performance can vary widely from gold prices, however.
- Gold futures and options: These contracts let you speculate on gold prices with less upfront money. You can earn higher returns, but they’re complex and risky instruments best suited for experienced investors.
The bottom line
With careful research and strategy, buying gold stocks can be a decent way to diversify your portfolio.
Before investing, Thor recommends looking into each mining company’s financial health, leadership team and ability to handle market swings. Also, consider consulting a financial advisor about how gold stocks fit into your portfolio. They’ll help you explore mining companies, determine the right allocation and create a strategy that matches your goals.
