Gold-related investments have always been among investors’ priorities. Most investors prefer physical gold (gold bullions and coins). Others prefer “virtual” gold (gold accounts). However, there is another (indirect and unconventional) way to invest in gold. I’m talking about investing in the stocks of gold-mining companies (or gold stocks, for short).
Let’s try to find out how profitable it is to invest in gold stocks…
Investing In Gold Stocks
According to Eugene Olkhovsky, ’s leading expert in financial markets, the financial performance of any particular gold-mining company depends on gold prices. The financial performance improves as gold prices grow. Consequently, the stock of any particular company appreciates as well.
This is the list of the world’s major gold-mining companies:
· Barrick Gold;
· Newmont Mining;
· GoldCorp;
· Kinross Gold;
· Agnico-Eagle Mines.
The stocks of all the mentioned companies are currently losing value. There is no reason to be surprised if to consider the fact that gold and the entire stock market are under pressure. According to the Commodity Trading Department of , after the retracement is over, investors may well consider adding these stocks to their investment portfolios. The charts below show the levels where investors may get interested in buying these stocks.
Even despite the fact that gold prices have been growing more actively than stock indexes over the last 12 months, gold stocks keep losing value. In 2011, FTSE Gold Mines declined almost by 5%.
Gold mining becomes more difficult every year while gold reserves get scantier.
Strange as it may seem, in 2011, gold appreciated by 11% while gold stocks declined by 10%. However, 2012 is expected to become the year of merger for gold companies. Some of them have already increased the dividends for their shareholders in order to compete with ITF funds.
Precious Metal Market Prospects
According to , investing in gold stocks is for sophisticated investors who know the industry quite well. However, at this point, even the world’s best investors are suffering from temporary losses:
· George Soros, the legendary billionaire, investor and the founder of Soros Fund Management, bought Tower Hill and Franco Nevada’s stocks.
· John Paulson, another legendary investor and the manager of Advantage Plus Fund, increased his share in Agnico-Eagle, Barrick Gold, International Tower Hill, Randgold Resources, IAMGold and NovaGold’ stocks.
· David Einhorn, the founder and manager of Greenlight Capital, doubled its share in Market Vectors Gold Miners’ stock and invested in AngloGold Ashanti, Barrick and Gold Fields.
The bottom line: Most investors think that an increase in gold prices will automatically make gold stock appreciate with them. That is wrong. Precious metals have always been considered as safe haven assets, unlike gold stocks. Gold mining companies are just separate units in the industry. That is why economic instability causes price hikes in the market of precious metals while gold stocks (like any other stock) start going down.
Market Leader and would appreciate if you could participate in a survey. Please, visit the Academy’s forum for traders and investors and answer the following question:
What is your gold market outlook for the 2nd half of 2012?
