Why Gold Matters
Why Gold Matters: Everything You Need To Know
Investing in Gold
The easiest way to gain exposure to gold is through the stock market, via which you can invest in actual gold bullion or the shares of gold-mining companies. Investing in gold bullion won't offer the leverage you would get from investing in gold-mining stocks. As the price of gold goes up, miners' higher profit margins can boost earnings exponentially. Suppose a mining company has a profit margin of $200 when the price of gold is $1000. If the price rises 10%, to $1100 an ounce, the operating margin of the gold miners goes up to $300 – a 50% increase.
Of course, there are other issues to consider with gold-mining stocks, namely political risk (since many operate in third-world countries) and the difficulty of maintaining gold production levels.
The most common way to invest in physical gold is through the SPDR's Gold Shares (NYSE:GLD) ETF, which simply holds gold. When investing in ETFs, pay attention to net asset value (NAV), as the purchase can at times exceed NAV by a wide margin, especially when the markets are optimistic.
A list of gold-mining companies includes Barrick Gold (NYSE:ABX), Newmont Mining (NYSE:NEM), Goldcorp (NYSE:GG), and Anglogold Ashanti (NYSE:AU). Passive investors who want great exposure to the gold miners may consider the VanEck Vectors Gold Miners ETF (NYSE:GDX), which includes investments in all the major miners.
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