All About Gold ETFs and Stocks

The majority of investors put their money in three investment classes, stocks bonds and cash.  There are a few other classes of alternative investments that are available for diversifying a portfolio, such as precious metals, like gold, silver and others, which are usually recession proof, because they increase in value when stocks decrease, they gain value when there is geopolitical uncertainty, and they will often protect the investor against inflation.  Gold specifically has a long history for use as a Store of Value (SOV) and approximately half of the gold that is mined is used in the jewelry industry.   The issue is that gold is limited in that it is not the easiest to handle, requiring special storage in some cases, and physical gold cannot be converted to another asset like cash as quickly as stocks and bonds can.

Because of this there are now several ways to invest in gold that remove this difficulty.  There are different gold stocks that can be purchased and if you are interested in just the metal itself or gold mining, there are exchange traded funds (ETFs) which allow investors to buy small amounts of many different investments with the single fund, kind of like a mutual fund but usually with much lower fees.  These products are great because they allow you to buy a diversified gold investment while not needing the minimum $20,000 to buy a 10oz or larger gold bar. 

So what are ETFs and why are Gold ETFs popular?

ETFs are companies that sell shares to investors and then use the pooled money to invest in the ETFs objective investments.  They use indexes to invest from so there is no money manager making decisions.  Their goal is to match the benchmarks they follow and then charge a very small fee to do so.

ETFs are popular because they can be bought into for a low price (most cases under $100).  And this gives you a very diverse portfolio that you are now part owner of.  This diversity lowers the beta of the ETF greatly and you don’t have to do any work picking stocks.  ETFs are also good because you can choose when you pay your capital gains and you don’t pay them until you sell the asset while other investments you will pay on their dividends.  ETF’s are also very easily traded so finding a gold bar buyer is not needed.

What are the types of gold ETFs?

There are two major types of gold ETFs. One seeks to track the price of gold itself and they are there to replace the holding of the metal.  They hold it themselves or they are buying gold futures.  The second type is gold industry specialists. They follow mining and production or financing of gold mining in exchange for a lowered price of the gold produced. 

What are some ETF’s I can invest in?

Some of the largest ETFs are the following four. We want to introduce each and tell a bit about their approach as well as some advantages and disadvantages of each so that we can make you an educated investor.  We can suggest the best possible ETF or gold stocks to help you in your investing. 

SPDR Gold Trust began its operations in 2004 and since has been the industry leader, they hold more than 24 million ounces of gold bullion that provide the basis for valuing their ETF’s shares.

iShares Gold Trust is the second largest and started in 2005.  They hold nearly 8.8 million ounces of gold, and they have a lower expense ratio of 0.25% which gives the iShares ETF a savings advantage over SPDR.

Van Eck Vectors Gold Miners tracks an index of major good mining industry global players.  These players must have a minimum 50% of their revenue from gold mining or related activities.  There are around 50 companies that they invest in. 

Van Eck Vectors Junior Gold Miners … the same company owns this ETFbut this index tracks small-cap companies involved in gold and silver mining.  The risk is higher for this ETF but the gains over the past 5 years have been substantial.

Gold Stocks

So if you are interested in gold stocks rather than ETFs, we have five that we believe will fit the bill.

Best Value Gold Stocks

If you want to look for value investments in gold you need to go to the Canadian market.  These three cannot be beat.

Barrick Gold Corp.: Barrick Gold is a Canadian-based mining company producing gold and copper.  They have operations in the U.S., Canada, South America, Australia, and Africa.

Kinross Gold Corp.: Kinross Gold is also a Canadian-based gold mining company engaged in gold exploration, development, and production in Canada, the U.S., Russia, Brazil, Ecuador, Chile, Ghana, and Mauritania.

Alacer Gold Corp.: Alacer Gold is also a Canadian gold producer engaged in the mining, development, and exploration of mineral deposits in Turkey.  They currently have plans for a proposed merger with SSR Mining Inc. (SSRM.TO) to be voted on this year (July).

Growth Gold Stocks

Newmont Corp.: Newmont acquires and develops mineral properties which includes primarily gold, but also silver, copper, zinc, and lead.  Newmont has production in Mexico and Nicaragua, Canada, and Peru among others.

SSR Mining Inc.: SSR Mining is again a Canadian based company engaged in the exploration and development of gold and silver mines, with operations throughout the Americas, including mines in Nevada, Saskatchewan, and Argentina.  SSR and Alacer will be voting to join forces in a merger in 2020.

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