Gold investments are a popular option for people trying to diversify their portfolios and lay the groundwork for a secure financial future. However, a gold investment could come in various forms—not just gold bars and gold coins. If you want to enter the world of precious metals, consider investing in gold mining stocks.
In this guide, we’ll walk you through what gold mining stocks are, how they can benefit you, and helpful tips to make the most of your wealth. You’ll also discover the best gold mining companies to consider for investments.
What Are Gold Mining Stocks?
Gold mining stocks refer to shares held in gold mining or exploration companies. They trade on stock exchanges just like traditional stocks, allowing you to share a piece of the pie when a company expands and sees major profits. Instead of buying physical gold, you can invest in gold companies to accelerate asset growth.
Holding shares in gold mines means your investment value goes up and down with the value of gold mining companies. For example, the price of your gold stock will probably rise every time an exploration company stumbles on a new site. However, the value will likely drop if that same company decreases production.
Are Gold Mining Stocks a Good Investment?
One of the first questions most precious metals investors ask is, “Are gold mining stocks worth the money?” With so many other options, it may seem like you have better places to allocate funds. Stock exchanges and shareholding may also sound intimidating at first.
Precious metal mining shares are an excellent purchase if you’re willing to be patient and play the long game. Your initial buy-in doesn’t have to be large, but you can see it grow exponentially over time. This could lead to an impressive dividend yield a few years down the road.
Another reason gold mining shares are a good option involves market stability. Other stocks skyrocket and plummet with dollar values, real estate values, and other more volatile markets. On the other hand, gold mining shares tend to mimic the gold market—historically, an incredibly consistent market.
Is It Better To Invest in Mining Company Stocks or Physical Gold?
Buying physical gold isn’t necessarily better or worse than buying gold mining shares. It mainly depends on your financial goals. Gold bullion may provide more financial security in the long term, while gold company shares are typically more lucrative in the short term.
Gold miner stocks have historically outperformed physical precious metals in several areas, including:
- Ease of initial investments: Buying gold stocks for the first time is simple if you already have experience with the market. You can easily incorporate it into your portfolio and start investing.
- Gold market dependency: The value of your share in a gold mine doesn’t depend on the price of gold. In other words, your stocks can do well even if gold prices drop.
- Operating and financial leverage: When the gold price spikes, gold companies have more disposable income without changing debts and production costs, increasing free cash flow. Higher cash flow means higher equity value and higher shareholding values.
Investors have historically turned to the gold market for financial stability and long-term gains. Gold company shares are comparatively new but no less effective. It might be more valuable to invest in stocks if you plan to cash them in before you reach retirement age.
What Affects the Price of Gold Stocks?
If you’re familiar with shareholding, you’ll know prices can change rapidly. The price of gold company shares is no different. It may fluctuate for a variety of reasons.
The primary cause behind fluctuating gold stock prices is the price of gold. Since the coronavirus pandemic and international conflicts, investors seeking to hedge their wealth from economic crises have turned to more stable markets like gold, silver, and other precious metals. This has led to an increased gold value, higher demands for physical gold, and, consequently, a higher shareholding price.
Inflation is another factor that affects the price of gold shares. Gold values have an inverse relationship to U.S. dollar values. In other words, gold becomes more valuable when paper currency becomes less valuable.
Why does this happen? Investors don’t want a vault full of paper currency if that type of asset continues to decrease in value. They branch out to invest in more valuable assets like gold, increasing demands for it, which increases the value of mining companies and share earnings.
The price of mining company shares may also vary depending on interest rates. When interest rates decrease, gold costs tend to increase. This leads to a corresponding increase in your stock’s potential dividend yield.
As commodities, gold investments like physical gold and a gold miners’ ETF do not require interest payments. Therefore, investors aren’t looking to buy gold when interest rates are high. However, this precious yellow metal becomes a much more profitable option when interest rates drop and potential earnings with other assets decrease.
As with any commodity, the scarcity of gold affects its price. If physical gold is readily available, it isn’t worth as much to the public. However, the price of gold (and consequently gold shares) skyrockets when mining companies can’t keep up with the demand.
This is the classic supply-and-demand factor that influences pricing for almost every industry. A smaller gold supply and increasing demands affect the price of gold mining company shares. When the supply-to-demand ratio changes, share values will change too.
Besides gold prices, another factor will impact the value of your shares: company performance. Prices will soar for shareholders when the company performs well. However, a company’s success can suffer due to the following:
- Personnel changes: When experienced gold miners retire and new workers join the team, it can affect company performance. Mining companies may go through a period of low production as they undergo personnel changes.
- Lawsuits: Minor lawsuits can hurt a company’s performance dividend and lead to budget or personnel cuts. However, a major lawsuit can cause gold mining companies to go bankrupt overnight and shut down production permanently.
- Employee strikes: A business won’t be able to function if its employees refuse to work. When gold miners strike, it affects company cash flows, performance, and your gold stock price.
- Natural disasters: Floods, cave-ins, and other natural disasters can drastically impact a company’s gold production. The share values could increase in the same period if it becomes more expensive or difficult to produce gold.
Advantages of Holding Shares in Gold Miners
If you’re looking for a well-established method of accelerating financial growth through investments, consider climbing aboard the gold shareholder train. You get to enjoy a plethora of benefits when you buy shares in a gold mining company, including:
- High liquidity: You may find it challenging to liquidate certain assets for quick cash. However, a gold stock has relatively high liquidity. That means you can cash stocks in if you decide to reallocate funds or make a significant purchase.
- Market accessibility: You don’t have to be a top-tier professional trader or world-renowned businessperson to invest in mining company shares. It’s easy to get started if you have some prior knowledge and experience with the market.
- Portfolio diversification: One of the biggest reasons investors turn to the gold market is to diversify their portfolios. By spreading out your wealth and keeping it in multiple places, you don’t need to worry about market volatility or economic crises.
- Protection against inflation: A dollar isn’t worth as much now as it used to be, thanks to inflation. People with lots of paper currency aren’t as wealthy as they were decades ago. You can hedge your funds and protect yourself against inflation by buying shares in gold miners.
- Exposure to the gold investment sector: Are you considering purchasing gold? Investing first in a gold company share is a great way to ease into it. You can learn about gold prices, market trends, adjusted net earnings, and many other aspects of the industry.
- Gold discoveries: Big-name gold producers and suppliers aren’t the only ones to offer shares. You could buy stocks in a small gold mining company and see a massive payoff when gold miners discover gold.
Risks of Owning Gold Stocks
It’s easy to focus only on the advantages of gold investments and blindly dive into them. However, a good investor will always consider the risks before making financial decisions. You should know that gold stocks aren’t always a foolproof investment opportunity.
As you think about buying shares, consider these potential risks:
- Market instability: The price of precious metals significantly impacts the cost of your stock. However, gold shares run on the stock market. If the market crashes, it will negatively impact the value of your gold miner or gold manufacturer stock.
- Mining company issues: In some ways, owning company shares could be risky because they rise and fall with the company. For example, gold production might come to a screeching halt if an earthquake causes a cave-in or employees go on strike. These issues could cause your stock values to plummet.
Are Gold Mining Stocks Taxed?
When you invest in gold stocks, you must pay taxes the same way you would when buying and selling any other stocks. You may owe taxes on the profits earned from selling gold stocks, known as capital gains. The amount of taxes you owe, if any, depends on the amount of time you held the stocks.
Short-term capital gains taxes apply to gold stocks you hold for a year or less. This tax rate ranges between 10% and 37% depending on your annual income, marital status, and other tax-filing criteria.
Long-term capital gains taxes apply to gold stocks you hold for longer than a year. This tax rate ranges from 0% to 20%.
We recommend talking to a financial advisor about the taxes you may owe on your gold mining investments.
Top Gold Stocks To Invest In
Choosing the best gold mining stock for you can be a daunting task. To figure out the best gold stocks to purchase, you’ll want to consider these factors:
- The company’s management team
- The company’s financial statements (balance sheet, income statement, cash flows, dividend yield, etc.)
- The company’s business fundamentals (revenue, earnings per share, etc.)
With this in mind, read on to learn about the top gold mining companies and where they’re listed:
Barrick Gold (ABX)
Barrick Gold is a Canadian company with some of the most highly prized gold stocks. With mining sites in 13 different countries (including Tanzania, Saudi Arabia, the United States, Australia, and Argentina), this company pays an incredibly high dividend yield. You can find it on the New York Stock Exchange and Toronto Stock Exchange.
Newmont Corporation (NEM)
Newmont Corporation is the number one gold producer and supplier on the planet. Based in Colorado, this company acquired Goldcorp in 2019 and now has mining locations on five continents. If you’re looking to invest in the best gold stocks, look up Newmont Corporation on the New York Stock Exchange.
Kinross Gold (K)
Kinross Gold is a Toronto-based gold mining company with operations in Canada, Brazil, Ecuador, the U.S., Russia, Chile, Mauritania, and other countries. Although not as established as Newmont Corporation and Barrick Gold, experts project Kinross will increase production dramatically in the coming months. You can find this company listed on the New York Stock Exchange.
Newcrest Mining (NCM)
Reports show that this Australia-based company has the world’s largest gold ore reserves. Newcrest Mining is ranked fifth in global gold production, with operations in Australia, Papua New Guinea, Indonesia, and Canada. You can buy, sell, and learn more about Newcrest Mining gold shares via the Australian Securities Exchange.
Agnico Eagle Mines Ltd. (AEM)
Agnico Eagle Mines operates in the non-energy minerals sector with a focus on gold mining and exploration. Headquartered in Toronto, this company has offices in Canada as well as Europe, Latin America, and the United States. Agnico Eagle Mines has a high dividend yield with listings on the New York Stock Exchange.
Eldorado Gold (ELD)
Canada boasts gold companies with some of the highest annual dividend yields, including Eldorado Gold. Eldorado Gold works in the gold mining, exploration, and development segments with operations in North America, South America, Europe, and the Middle East. To find the best gold stocks, check the Toronto Stock Exchange and New York Stock Exchange.
How to Choose the Best Gold Mining Companies for You
There are several factors to consider when choosing which companies to invest in. It’s important to ask yourself some key questions, such as:
- What is your investment strategy? Deciding whether you want long-term investments or something more short-term will help you determine the type of stock to buy.
- What is your risk tolerance? Some investors are comfortable with high-risk, high-reward scenarios. However, you may prefer a more stable portfolio that will grow steadily over time.
- How much do the gold stocks cost per share? You may not be able to afford companies engaged in world-class mining, so it’s essential to ensure that they’re within your price range. Companies with less gold produced annually might be a better option even if you can afford shares in an industry-leading company.
If you’re looking to diversify your portfolio but aren’t quite ready to jump into physical gold investments, consider investing in gold mining stocks. The best gold stocks combine the stability of the precious metals market with the familiarity and liquidity of the stock market. Although there are a couple of risks involved, most investors in the mining and exploration sector enjoy significant earnings.