Investing in gold mining stocks can be both an alternative and supplement to owing physical gold.
In general, prices of gold mining stocks follow price movements in the gold market. But depending on the management and operations of individual gold mining companies, stock prices may deviate from such a general pattern, falling behind or marching ahead when comparing to what’s prevalent in actual gold trading.
Gold mining ETFs provide broader diversifications, as they all follow one or the other gold mining stock index, meaning an ETF fund invests proportionally in all the stocks that comprise that index, a sum of all its components by definition.
Another advantage is the low management expense charged by such ETFs, as they are all passively managed index funds. Moreover, their shares can be bought and sold on an open exchange just like stocks, making ETF investments very liquid. An ETF’s performance ultimately depends on the performances of all the individual gold mining companies in the index.
Mutual funds offer certain diversifications but it’s up to fund managers to actively manage funds’ portfolio holdings and management expenses they charge are therefore higher. Mutual fund shares can be bought through a broker using your brokerage account or directly from the fund company to avoid any broker sales fees.
Investors should research a fund’s investment strategy and its historical returns when choosing against competing offerings. A gold mining mutual fund’s success and thus returns for its investors solely rest on the shoulders of the fund manager whose expertise in gold mining companies and the industry can make all the difference.
Knowledgeable investors can also try to invest in individual gold mining stocks themselves through online trading, if they’ve already been trading stocks with a discount, online broker.
Owning gold is still the most stable way to get into the market. If you want to invest in gold, choose one of the three methods described above.