There are plenty of investment options for people aiming to build and increase wealth. Among their choices is buying gold shares, especially now that the precious metal has become more attractive in recent months as unprecedented stimuli from central banks reduce bond yields.
“Gold has been regarded as a safe haven investment during times of economic uncertainty. Should a state or currency collapse, gold investments preserve their value, as it is tied to the global market price, driven by a worldwide supply and demand dynamic,” says Cobus Loots, chief executive officer of Pan African Resources.
What makes for a good gold share?
Generally, gold shares are highly leveraged to the price of gold and rise by a higher percentage than physical gold – especially South African gold shares which also depend on the ZAR/$ exchange rate.
Keeping the intricacies that may affect the value of a share in mind, a good gold share is one which has shown historical stability in terms of market performance.
What options are there for investing in gold stocks?
Some of the methods of investing in gold have already been mentioned, but it stands to reason that some of their inner workings should be detailed, says Loots.
“The reason our focus lies specifically with mutual funds, exchange-traded funds, and gold royalty companies is that they are the most accessible, have a large market cap, are easy-to-understand, and relevant,” he explains.
Gold Mutual Funds
These are one of the most direct ways to invest in gold apart from physical gold bullion. The key is to invest in a mutual fund that has a diversified gold mining list comprising of various sized companies from across regions, and with different gold outputs per year. Altogether, they will help to bolster the performance of the fund and increase your share of the grouped dividends.
Gold Exchange-Traded Funds (ETFs)
Gold exchange-traded funds trace the position of gold bullion pricing. They can, therefore, be said to be an adjacent financial instrument because although a change in the physical commodity price does affect them, the gold ETFs don’t change in parallel.
Gold Royalty Companies
This is one of the more interesting investment vehicles for someone who wants to invest in gold shares. A gold royalty is a contract that gives a gold royalty company the right to a percentage of gold production, or revenue in exchange for an upfront payment. You can buy shares in a royalty company through a normal brokerage.
The smart investment play for gold royalty shares
If you have the capital, having a stake in each of the most accessible forms of gold investment would be key. However, Loots recommends that if you cannot invest in them all, investing in a gold royalty company is the smartest financial market decision. This is because the contract will have been written such that an increase in the mine’s production means a direct, and proportional increase in dividends.
On top of that, the decision to invest in the royalty company means you get to benefit directly from the increase in gold bullion prices, not hedging on a tenth of the price, or a conglomeration of ownership stakes, which will tend to be smaller, in different mines.
Gold is likely to remain a strong performer through 2020 and beyond, especially considering the increasing stock market risks. With a variety of gold investment avenues available, investors can build an effective portfolio to meet their investment objectives.