In what is currently the new gold rush, Canadians are investing more in a variety of stocks including gold stocks.
There has been an unprecedented rise in the number of DIY stock traders all over the world. Online stock trading platforms like Questrade and Wealthsimple have simplified stock trading for novice investors.
So what’s with gold stocks? Let’s start with the gold. Gold is a dense yellow shiny precious metal. It possesses unique properties that have conferred value on it in almost all human societies for ages.
Its bright attractive colour, malleability, relative durability, and indestructibility have made it one of the most sought after items in human history. It is globally regarded as a symbol of wealth and royalty and is melted into coins, bars, and different forms of jewelry.
The rarity and difficulty of mining gold also ensure that its supply was limited and as such it retained its value over time. To date, only about 187,000 tonnes of gold have ever been mined.
Asides from its rarity and ornamental purposes, Gold emerged as one of the first mediums of exchange and vehicle for financial transactions among humans for thousands of years.
Gold as Medium of Exchange
In search of solutions to the many problems of the barter trade system, Gold emerged as a widely accepted medium of payment and store of value. Gold has played a key role in virtually all stages of human civilization.
Universality of Gold
Gold is an asset that has intrinsic value. It has industrial, ornamental, and even sometimes, medicinal uses. This makes it more valuable than other precious metals of which are rarer and more expensive than Gold is.
Metals such as Diamond and Platinum are deemed to be more expensive metals than Gold, but none of them has attained the level of reverence and general acceptability that gold possesses.
Throughout history, Governments, firms, and wealthy individuals around the world kept their wealth reserves in gold. This universal acceptability further reinforces its standing among other precious metals.
Gold as a Store of Value
After several eras of global economic meltdown, recession and chronic inflation people have generally lost faith in fiat currencies to provide a lasting store of value. As a result, governments, wealthy individuals, as well as some of the largest firms in the world all, prefer to store a significant portion of their wealth in Gold.
Gold vs US dollar history (The Bretton Woods System)
In 1944, some of the world’s most developed Economies at the time, the United States, Western European Countries, Japan, Canada and Australia all came together to device the Bretton Woods system.
They negotiated a monetary order which obligated each country to tie its currency to gold. It effectively removed foreign exchange imbalance among the countries.
This was done to prevent drastic currency fluctuations that have plagued the world in the 1930s and to help foster cooperation and stimulate trade among nations of the world after the second world war.
At the time, the United States which controlled over 60% of the world’s gold insisted that the Bretton Wood System rest on both the US Dollar and Gold.
In literal terms, $1 is could be exchanged for a fixed amount of Gold at any time. Other countries then simply had to benchmark their own currencies against the $US as it is more divisible and easier to carry around than bags of physical gold.
The system achieved relative success in the 1950s and 60s by engendering stable economic growth exchange rate currency stability globally.
However, in August 1971, the American President, Richard Nixon announced that the US had unilaterally terminated the convertibility of the US dollar to Gold. This was largely due to the eventual shortage of Gold at the US treasury, to fulfil all Gold claims and the need for the US to print more dollars to address its dire Fiscal deficit needs.
In the late 1960s, the US began to violate some of the policies in the Bretton Woods agreement by running a trend of deficit budgets.
Britain and France began to insist that the arrangement conferred an unfair advantage on the US and decided to immediately convert all their dollar reserves into gold by making a run on the US treasury.
This would have almost emptied the US treasury of all their gold holdings. The announcement by President Nixon instantly led to the end of the Bretton Woods system.
This explains why the $ US Dollar is highly revered to date, in global trade.
Investing in Gold
Many people all over are always looking to invest their earnings in Gold, either as a way to save, preserve their earnings from losing value, or as a way to grow their savings as the value of gold increases.
Why Invest in Gold?
Gold is not for aggressive investors, it does not yield a stream of income. I.e. If you’re looking for a means to grow your savings by 200% annually, Investing in gold is definitely not for you. However Gold possesses some very good qualities of a good investment.
- Stable value
Gold is relatively stable compared to other commodity markets or the traditional stock markets. It is one of the surest and proven ways to preserve wealth in human history.
As the average cost of living continuously rises in your city, the value of money drops. For example, the annual inflation rate in Canada ranges between 1.95% to 2.5%.
Investing in gold helps to hedge against the risk of inflation that most fiat currencies of the world constantly face.
- Universality
Seriously, who doesn’t value gold? athletes, brides, tech manufacturers, jewelers among others.
- Liquidity
Gold is always in demand. At any point, if you decide to liquidate your gold investment for some cash, there is always a ready market.
- Free flow of Information
Information about the Gold market is readily available, and you do not require years of training or multiple university degrees to understand it.
How to Invest in Gold
There are basically three ways to invest in Gold. Purchase gold directly, Gold Stock & Gold ETFs.
1) Purchase and Hold
One way to invest in gold is to purchase Gold from your local jewelry dealer or private mints for safekeeping at home or in safe deposit boxes.
Advantages:
- No extra fees or charges.
- You make full gains whenever the price of gold rises.
- It is typically good for people in Developing countries where currency is very volatile. It helps to preserve the value of their savings and income.
Disadvantages
- Purchasing gold on the streets from unregulated market dealers puts you at risk of purchasing fake item.
- Keeping gold at home or in uninsured safe deposit boxed exposes you to a risk of losing all of your life-savings in one unfortunate incident.
- Keeping gold at home will drastically increase your home insurance premium and other related costs. Keeping your gold bars at private vaults also attract significant costs in form of safe keeping fees.
- Gold is heavily concentrated in the hands of only a few Countries and their central banks. This exposes you and the whole market to risks of fluctuations whenever these countries buy or sell gold.
2) Gold Stock
This typically refers to Gold Miner’s Stock. It is an indirect method of investing in Gold by purchasing stocks of companies that dig up and mine gold. When the price of gold rises these companies make more profits and offer larger returns on investments to all their shareholders.
Advantages
- Increased profitability
- No risk of theft or falling prey to counterfeiters
- No need for insurance costs or safe keeping fees
Disadvantages
- Owning Gold stock does not mean that you are entitled to gold bars of the corresponding stock value.
- Gold mining is a very expensive and risky venture. Miners are exposed to life threatening risks and natural disasters such as flood, mine collapse, equipment failure etc. One of these disasters can lead to huge losses for the company leading to drastic fall in the value of stock purchased.
- Mining companies often use unsustainable and inhumane methods of mining. Example of these is the use of child-miners in Africa, lack of safety measures/equipment for mine workers etc. All of these can expose the company to fines, sanctions or international boycott.
- Gold Stock companies are exposed to a lot of expenses such as life insurance for miners, legal fees, equipment maintenance, general mine maintenance, all of which can really eat deep into the company’s profits and ultimately eroding dividends paid to investors.
3) GOLD ETFs
Gold Exchange Traded Fund (ETFS) is a mutual commodity fund that is heavily based on Gold or Gold stocks as the principal asset. The funds usually hold gold derivative contracts that are backed by gold. However, you would not be owning claims to any actual Gold.
A Gold ETF investor will make gains on the global performance or price movements of Gold but would not own any gold. A Gold ETF can also contain a few stocks that have absolutely nothing to do with Gold.
Advantages
- Gold ETFs have tax benefits. And they can yield profits in real terms which are higher than nominal terms. Taxes are deducted on nominal gains.
- If the price of gold drops, Short positions on the ETF can still yield significant profit. Which means you can make profits when the price of gold drops.
- The diversity of the ETF can help to hedge against the risks involved in the gold mining industry.
Disadvantages
- You don’t own any actual gold
- You are exposed to the risks involved in other sectors of the different stocks which are contained in the fund
Investing in other precious metals & Commodities
If you are looking to diversify there are also investment opportunities that exist using other precious metals and traded commodities such as Silver stock, Bronze, Crude Oil, Cocoa, Cotton, etc.
Silver Stock
Silver is typically regarded as the next best thing after gold. However, there is a large difference in their values. The current ratio of 1 ounce of Silver to Gold is about 70:1.
Best Silver Stock
Some of the best Silver stock to purchase include:
iShares Silver Trust, Wheaton Precious Metals, Pan American Silvercorp, Fortuna Silver Mines Inc. Silvercorp Metals Inc.
Best Gold Stock to Buy in Canada
Below are some gold stocks that you can purchase in today’s markets:
1) Barrick Gold Stock
Barrick Gold is one of the largest Gold Mining Companies in the world. Although it is headquartered in Toronto, Canada, it has mining operations in different countries around the world including Saudi Arabia, Argentina, Papua New Guinea, the Democratic Republic of Congo, Tanzania, Zambia and the USA.
Barrick Gold mines around the world and produces about 5million Ounces of Gold annually.
Why you should Buy Barrick Gold Stock
- Economies of Scale
Due to its large scale of operation, the company is able to operate more efficiently and absorb losses better than smaller mining companies.
- Global Presence
Barrick Gold mines are located in different countries across the world helps it to avoid the significant risk of having a change in the policy of one of the countries affecting its fortunes drastically.
- Industry Best Practices
Its status as one of the industry leaders means that the spotlight is always beamed on the companies operations to ensure they conform to the industry standards of sustainable practices.
- Historical Volatility
The historical analysis of the companies stock prices and accounting profits over the years shows that the company finances are relatively stable under reliable management.
2) Newmont Corporation Gold Stock
Newmont Corp took its place as the largest gold mining company in the world in 2019 when it acquired Goldcorp.
It has legal licences and ownership of top tier mines in close to 10 countries all over the world.
Why You Should Buy Newmont Corp Stocks
- Industry Pioneer
Newmont Corp began operations as far back as the 1920s. They have operated in perpetuity since then, this has enabled them to acquire significant industry knowledge and trade secrets over the years. This makes Newmont Corp one of the most reliable stocks to invest in today.
- Talent
Newmont Corp has a staff strength of over 30 thousand employees. This denotes that the company has a large number of the worlds most talented employees in the gold mining industry.
- Diversification
In addition to their age-long successes in gold mining, the company has also now diversified into mining of other valuable precious metals, such as copper, lead, zinc and silver.
This means that even when there is a drop in the gold market, the company is still able to shore up its profits with income from the sale of its other precious metals.
3) New Gold Incorporation Gold Stock
NewGold Inc is a Canadian mining company that owns and operates the mines in British Columbia and Ontario, Canada.
NewGold Inc owns royalties and streams in gold mining and other natural resource investments. It is traded on the Toronto Stock Exchange and New York Stock Exchange.
Although New Gold Inc was founded in 1980 for the purposes of mineral exploration, the company became a major mine operator when it merged its operations with Peak Gold and Metallica Resources in 2008. Effectively spreading its tentacles in the Australian and American mining industries.
Why you should buy NewGold Inc. Stock
- Divestment & Acquisitions
The company’s history has shown a trend of acquiring other companies, this has boded well for them so far. Acquisitions have seen them expand their operations into new markets with a more diversified asset base.
- Canadian Roots
The company’s operations are largely based in Canada, hence they are protected by home laws and favourable tax rates in comparison to their peers who operate abroad. It also means that information about the company’s operation is readily available in Canada.
Gold Stock List
Other high performing gold stocks that are worth looking at are listed below.
Gold Fields, Kinross Gold, Eldorado Gold, Agnico Gold, Kirkland Lake Gold, Goldcorp, Yamana Gold, b2Gold, NewGold Inc, Royal Gold, Newrange GoldCorp, Harmony Gold, Newcrest Mining, Detour Gold.
Best Gold ETF to buy in Canada
Some top Gold ETF’s are,
1) SPDR Gold Trust ETF (GDR)
SPDR is an acronym for Standard & Poor’s Depositary Receipts.
This SPDR fund is an effective alternative for investors looking to switch to the gold or precious metal market without being totally exposed to the risks involved in owning stocks of individual mining companies.
SPDR has about $80 billion in assets under the ETF management.
Advantages
- The fund has allowed investors to purchase gold via their brokerage account or individual retirement account.
- The fund is bench marked to gold bullion, giving investors an easy way to get exposure to gold prices without physically owning an ounce of gold.
- SPDR Gold Trust has an expense ratio of 0.4% i.e $40 on every $10,000 invested annually. Which relatively high, yet quite cost-effective when you consider the alternative risks and costs of shipping, insuring and storing gold bars in a safe or deposit box.
2) iShares Gold Trust ETF
iShares is the largest issuer of ETFs globally. It tracks the performance of the gold market on the world largest stock exchanges. It is closely managed by seasoned asset managers to give investors the best possible returns.
The key factors for the attractiveness of iShares Gold Trust ETF are its diversity and a moderate expense ratio of about 0.25%.
3) Invesco DB Gold ETF (DGL)
It is managed by Invesco Powershares. A high profile Investment management firm based in the USA. The Fund collateralizes its futures positions primarily with US Treasuries, money market funds and T-. Bill.
This quality of its underlying assets makes its yields fairly reliable but conservative.
If you are looking for a way to preserve wealth and grow conservatively. Invesco DB Gold ETF is one you should have a look at.
Gold Penny Stocks
Penny stocks are typically stocks that are worth $10 and below.
Some of the best Gold Penny stocks to purchase are Galino Gold, Paramount gold Nevada, Platinum group, Alamos Gold, Yamana Gold and GoldenStar resources.
Recommendation
If you’re looking to start trading gold stocks, we recommend the Questrade. Questrade is an online independent discount broker, with a low minimum investment requirement, commission, and trading fee, that has been servicing Canadians since 1999.
