- Mining expert Gwen Preston details three ways to invest in gold (physical gold, exchange traded funds and gold-mining companies)
- Investing in gold-mining companies offers leverage compared with investing in physical gold
- Gold gives investors a multi-year cycle opportunity
- When might be the time to sell your gold investment?
With the current state of economic uncertainty, ongoing gold investment talk can be exciting and confusing. We have witnessed the buying of physical gold by the central banks as investors ride the waves of interest rates and recession-proofing.
The Market Herald Canada sat down with mining expert Gwen Preston to focus on different ways to invest in gold – from the physical metal, to ETFs and gold-mining companies.
TMH: Here to give us some clarity on the different ways to invest in gold is the publisher of Resource Maven, Gwen Preston. Gwen, what are the different ways to invest in gold?
Preston: Yeah, I mean that’s a good question because there’s lots of sort of big picture arm waving about, “Gold is good, gold is bad.” But what do you actually do if you become interested in investing in gold? Well, the first decision is whether you want to invest in gold, the metal, or gold companies. And the deciding factor there really is how much you want to sort of lean in.
So gold, the companies: There’s a whole spectrum within that category. There’s the big, major mining companies. Investing in them is not too different from just investing in the metal. Those are all low risk ways of investing. And I say low risk because they still certainly will follow the winds of the gold price. Whether that’s up or down, they will be moved by that.
But major mining companies’ share prices aren’t going to shoot up or fall based on a particular drill result or some sort of detailed corporate event. If you really want to lean into the space, you can invest in the smaller companies in the gold space. And there your opportunity for upside is much larger.
And really you’re talking about discovery. If you invest in a little tiny company that has an idea that this parcel of land has gold on it and they find that that is the case, you can get a really phenomenal share price return, but that’s a whole different thing. You have to either have knowledge or find someone who has knowledge, and that knowledge is geology and jurisdiction and companies and people and sort of figuring out the world of those junior mining stocks. I spend a lot of time on that. I really enjoy that. But it’s not for everyone.
If you like gold and you think you want to invest in gold, you can invest in a(n) (exchange traded) fund of gold miners. So by investing in mining companies, you get a bit of leverage on the price of gold because the math is just if the price of gold goes up and a miner’s costs stay about the same, then their profits go up much more than just the price of gold is giving you.
So miners are a good way to invest with some leverage. But if you just want to tuck some security away in your portfolio, you can absolutely just buy gold and then you can buy it yourself so that it has your name on it in a vault somewhere.
You can buy a gold-backed ETF. So it’s the metal, the miners or the juniors, and you just have to decide what works for you.
TMH: What are the best time terms for the different gold investments?
Preston: Some people own gold just as a constant in their portfolio because it is a hedge to a lot of things. Often times, you know, gold will move in the opposite direction of the U.S. dollar. It will move in the opposite direction of stocks sometimes, so it can be a good diversifier.
And in that case, whether it’s gold or the miners, it can just sit in your portfolio. It doesn’t even need to have a time frame. It just sits there as a bit of a hedge to other things. If you’re buying gold because you have a belief in a gold price thesis that gold is going to go over the next little while, that will determine your time frame.
Right now, I think gold is set up to do pretty darn well over the next few years. So I right now would encourage a few years, maybe three, five years, outlook on gold. Now, it is important with gold to realize that it does move in cycles. So even though some people just hold it there as a diversifier, if you’re more of a “playing it because you have a thesis about a gold bull market,” you do want to pay attention.
And one sort of silly, but still useful, way of paying attention is when everybody starts talking about the price of gold, it’s on the cover of magazines at the grocery store. And it’s, the top story on financial news sites when you go there in the morning, it might be time to sell. Because once everybody’s in and that cycle is likely to turn down, obviously there’s a lot of, there’s a large grain of salt that has to come with that.
Gold momentum builds and then interest turns, otherwise (for) all kinds of macroeconomic reasons. So you can certainly play the cycles, and the cycles are often several years long.
For more trending gold stories, check out Stockhouse’s gold page and for additional information on increasing the gold in your portfolio, check out our Wiser Wealth segment on the outlook for gold for the remainder of 2023 and where the gold growth in Canada is focused.
For more of this interview, check out The Market Herald’s Thematica Gold Report.
At the close Wednesday, gold was trading at just over US$1,873 an ounce.
The material provided in this article is for information only and should not be treated as investment advice. For full disclaimer information, please click here.
