Purchasing gold stocks is one of the easiest ways to invest in gold. In this article, you will discover the biggest gold stocks to buy as well as how to buy gold stock in both actual gold funds as well as a few other methods.
How to Buy Gold Stock
The physical act of buying gold stock is easy; if you know how to invest in the stock market, buying gold stock is just like any other stock: go through a brokerage and order the stock.
However, the real question is which gold stocks to buy, as there are a lot of different options to choose from, such as:
- Exchange-traded funds, which are gold trusts whose shares represent owning gold. The prices of gold-based exchange-traded funds track very closely with the actual price of gold;
- Gold futures, which are most commonly traded on the New York Commodities Exchange. If you are new to investing, I would not recommend this option as trading futures is very risky;
- Investing in gold mining companies, some of which are public and sell shares of their stock just like any other company.
Now, let us look at at which gold stocks to buy in each of these categories.
Gold Stocks to Buy
Now that you know how to buy gold stock and what your options are, let’s discuss what your different options are when considering what gold stocks to buy.
Gold Exchange-Traded Funds
The two major gold ETFs are the SPDR Gold Trust (NYSE: GLD) and the iShares Gold Trust (NYSE: IAU). These are traded just like a stock and can be purchased on the New York Stock Exchange through any brokerage.
The SPDR Gold Trust is the largest gold ETF in the world and one of the largest ETFs of any commodity in the world. Each of its shares represents 1/10 of an ounce of gold. The iShares Gold Trust represents 1/100 of an ounce of gold, so it tends to cost 1/10 per share when compared to the GLD. Both stocks typically track very close to the spot price of gold.
Gold ETFs have the convenience of being able to be sold just like any other stock. They also have the option of being sold short if you think the price of gold might decrease in time. Owning shares of a gold ETF is not without risk and these funds have varying maintenance annual maintenance fees (the owners of the funds have to make a profit somehow), so always investigate the specific ETF you are looking to buy into for fees before jumping in.
Gold Stocks to Buy – Futures
One of the ways you can buy “stock” in gold is through a futures contract. When you purchase into futures, you are essentially making an agreement to deliver a commodity (in this case gold) in the future at a pre-arranged price, and the other party buying it has agreed to buy gold in the future at that price. In the USA this is most commonly done through the CME group.
As an example of how this would work, someone who thinks the price of gold will fall over time would offer to sell gold at today’s price to deliver it in the future. Someone who thinks the price will continue to rise over time would take that person up on that offer. The buyer in this situation is “long” in this situation where the seller is “short”. So if you are long on gold, you suspect gold will rise in value, if you are short on gold you suspect gold will fall in value.
Futures are a very advanced investing option. If you are just learning how to invest in gold I do not recommend investing here and instead looking elsewhere. Once you learn how to invest and are much more comfortable with the market, this may be an area to look into. It is not for the faint of heart (or budget) though and risk can be high.
How to Buy Gold Stock – Gold Mining Companies
Another way to invest in gold is through gold mining companies. There are many publicly traded gold mining companies, and the top five are traded publicly over the NYSE under the symbols ABX (Barrick Gold), GG (GoldCorp Inc.), NEW (Newmont Mining), AU (Anglogold Ashanti), and KGC (Kinross Gold Corp). There are more gold mining stocks than this of course which have more potential to increase in price (and more potential to fall in price!).
Gold mining companies are an interesting investment option simply because they tend to be very volatile. The reason for this is that a relatively small rise or fall in the price of gold can move a company from being unprofitable to being profitable or from being somewhat profitable to being extremely profitable.
If you are not intimately familiar with gold mining stocks, it is much safer to just buy gold stock through an ETF. Gold mining companies can rapidly lose value, so unless you are familiar with the intricacies of the gold mining business, very few investors would recommend this option.
How to Buy Gold Stock – Gold Stocks to Buy Conclusion
For the new gold investor looking for methods on how to buy gold stock, investing in an ETF like NYSE:GLD or NYSE:IAU tend to make the safest bets. These track closely to the price of gold, so if gold gets more valuable, so will these stocks. Likewise, if gold prices fall, so will these stocks.
In addition to buying into an ETF, you can buy or sell futures as well as invest in gold mining companies. However, these options are much more risky and I would not recommend them for anyone who is not already a seasoned commodities investor.