While I have been interested in all things financial since a young age, I have to mention that until recently I knew very little about gold trading and other gold related ventures. I had always been fascinated by the idea of investing in gold because of its flash and the way it has been revered throughout the ages..
Gold is considered a safe investment because it is both a physical and universal commodity, as well as a finite resource. It is stable like a strong ship resisting the battering waves of an uncertain market.
The price of gold tends to soar in times of economic instability because of the panic that is induced and perpetuated by the media. For example, the price of gold surged with the news that Great Britain voted to leave the European Union in June. It is no coincidence that gold is up nearly 20 % this year to date. The market is heavily influenced by speculation, and when people believe the world is spiraling out of control, gold looks to be a safe way to hedge your bets should the economy crash.
Gold vs. Gold Mining Stocks
Gold is not known to be a very savvy investment, It's more of a wise safeguard to protect your portfolio from uncertainty. What gold and gold shares on the stock market have in common is that they are safe bets in times of economic distress and are known for their liquidity.
Though they have many similarities with each other and thus rise and fall together, they do have glaring differences. Physical gold offers a much more stable bet than stocks, which serves better for a long-term strategy or a retirement portfolio.
When the market is doing well and stocks are strong, the value of gold suffers and the prices go down. With this in mind, mining stocks are more volatile and therefore offer more potential for swift loss or return on investments, making it a riskier but an ultimately more lucrative choice.
While the market values of these stocks rely on the prices of gold to an extent, they offer an interesting alternative to gold because they also function like any other stock would. When investing in gold you are really only purchasing a physical commodity that behaves like a currency. But when investing in stocks, you are purchasing a stake in a company that in this case, mines for natural resources such as gold.
Majors vs. Juniors
When selecting a potential mining stock to invest in, the first and perhaps most important factor is whether to choose a long established major company with considerable reserves, or one that is new to the scene, perhaps still in the exploratory phase and seeking to have a major breakthrough. Oftentimes the newbies are small time and have yet to find a considerable reserve, which makes them inherently more risky compared to their larger counterparts.
The major companies are safer bets because they have vast reserves to draw from and constantly buy out smaller companies. Since they are already established and successful, they are often better for those of you that are risk-averse, while the juniors could go out of business just as easily as they could find a massive deposit of gold.
How Does a Mining Company Function?
Since you are investing in a company, it is important to treat it like any other investment. While researching said companies, I found that one of the strongest indicators of financial growth was strong production as well as a steadily growing reserve of the resource. It is also important to note that since every mining company offers the same exact product in this case, the ones that spend the least amount of money to extract resources are a better bet and have more capability to make money.
5 Best Gold Mining Stocks For your Consideration
Newmont Mining Corporation (NYSE: NEM): This colossal Colorado,-based corporation was put up over 90 years ago, and is perhaps the world's foremost precious metal mining company with active mines in Australia, Africa, Asia, as well as North and South America. Notably the only gold mining company in the S&P 500, Newmont frequently purchases smaller mining companies to offset the depletion of its own reserves, and has a 2016 attributable exploration budget of approximately $185 million,. All of this makes it an extraordinary and low-risk bet.
B2Gold Corporation (NYSE: BTG): This Canadian company has been a notable player in this sector since its inception in 2007. B2Gold has major mines in Africa, Asia, and South America, and is currently in the process of buying more. This year to date, its stock price has quadrupled in price with no sign of slowing down, and the company projects an earnings growth in excess of 700% by year's end.
Barrick Gold Corporation (NYSE: ABX): Originally a small North American based oil and natural gas company, Barrick began acquiring gold mines in the 1980’s, and slowly transformed in the subsequent years to become the world’s largest gold mining company. It continues to appropriate large portions of its budget to new exploration and mine acquisition, and has seen its stock price almost triple this year.
Goldcorp (NYSE: GG): Yet another superstar Canadian based company operating mines all over North and South America. This twenty-year-old company saw huge success from 2008-2011 during the economic downturn and skyrocketed to over 50 dollars per share at its height, but has since come crashing down to earth. While perhaps less lucrative than its competitors, I have noticed that this stock forecasts as a more stable option and fluctuates significantly less.
Sandstorm Gold Ltd. (NYSE: SAND): For my last selection, I chose this stock because it employs a slightly different business strategy than the rest. It revolves around gold streaming, which means that for upfront cash payments, a promise is made to the investor for a certain percentage of the gold mines eventual production. This enables such a company to be less dependent on one set of claims and thus more diversified in nature providing an excellent choice for the risk-averse. Sandstorm hit an all time low in the beginning of the year and has since doubled in price, and is poised for more growth.
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In summation, I would like to say that the biggest realization I have made whilst researching this subject matter, is that it is now exceedingly clear to me just how our economy is filled with uncertainty.
With the world experiencing negative interest rates, oil prices plummeting, and currency inflation, not to mention the hyper-volatile political climate, I think it is safe to say that gold and all gold related business ventures should see lots of upward movement as long as these trends continue. When I compiled the list above, I found it easy to read up on all of these companies by reading investor information on their websites, which provided accurate graphs, charts, news releases, and projections of reserve growth, which are all crucial.
If anything is to be proven by this article it is that I, having known very little previously, now have a somewhat profound understanding of this sector, and you can too with a little bit of research and gumption. The market is ripe with opportunities and I believe that you can take advantage of that!