When it comes to the choice of precious metals stocks, you’re investing in a mining company’s ability to deliver or perform.
Precious metals stocks can be more volatile than the exchange-traded funds and are not for the faint of heart. It should be noted that there are several sources to consider regarding mining companies. Be extra careful when considering mining stocks as an investment as there are a multitude of variables to measure up front.
The Gold Business In General
When you buy shares of any company, you are indirectly taking a stake in their reserves and their long-term business plan. Mining stocks reflect the profits of the company. If it costs the company $450 an ounce to dig up gold, pay employees, gas and the like, and the yellow metal is selling at $750, the company’s profit is $300 per ounce. If the price of gold then rises to $850 the company profit margin increases accordingly. But it works the other way in reverse, too. A drop in the price of gold could put the company in the red. So, the stock price is generally more volatile.
Different Types of Gold and Silver Companies
In general, mining stocks fall into 3 broad categories. These stocks are listed in descending order of risk with exploration companies being the most risky and producers being less risky.
How To Buy Gold and Silver Stocks
Like any other stocks, these trade on the major U.S. and Canadian stock exchanges. I would recommend avoiding all pink-sheet or unlisted stocks as the reporting requirements are very minimal. Once again, the only recommendation I would suggest is allocating only a small percentage of your overall portfolio to mining stocks and to conduct thorough due diligence before buying.
Gold and Silver Mutual Funds
Another way to buy precious metals stocks is to invest in actively managed open end mutual funds, closed end funds and exchange traded funds (ETFs). Stock mutual funds are not always direct plays, but they can help lessen the volatility and company risk associated with purchasing a single company. Most open end mutual funds typically invest in 50-125 individual holdings and include an internal expense ratio which is netted through the returns. There are also mutual funds that include a lot of different commodities including gas and oil to allow further diversification.
How To Buy Gold and Silver Mutual Funds
Precious metals mutual funds can be purchased through most brokerage firms, including well known online brokerages. As with any investment be sure to take your time and understand why you are investing. Like any investment, be sure to conduct your due diligence before buying.