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Investing in gold stocks

They’re celebrated as a safe haven, but geopolitical shifts may affect mining profits.

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Gold has long been hailed as a safe fallback for investors — especially those looking to diversify and hedge against inflation. But the companies responsible for this flashy commodity aren’t immune to risk and must be mindful of economic and geopolitical fluctuations in the countries they operate in.

What are gold stocks?

Gold stocks are stocks from companies involved in the mining and production of gold. The category is heavily dominated by mining companies, but investors can also back gold streaming and royalty companies: companies that fund mining efforts in exchange for the opportunity to buy gold at a set price in the future.

Gold stocks are one way for investors to gain access to this historically significant commodity, but there are also other ways to invest, including gold exchange-traded funds (ETFs) and purchasing physical bullion and coins.

Why invest in gold stocks?

Gold stocks can help diversify and stabilize your portfolio while simultaneously representing the cultural and historical significance of gold. Simply put: gold is valuable. It was valuable thousands of years ago, and it’s valuable now. It predates modern currency and its price tends to move independently of the stock market, strengthening its diversifying properties.

Historically, the price of gold has risen in tandem with the cost of living. This makes it a powerful hedge against inflation. It also tends to perform well in a down market as people fall back on the security of gold and cash in times of economic uncertainty. For an example of this phenomenon in action, look no further than the 1930s — when the market crashed, the purchasing power of gold skyrocketed.

With its ability to weather highs and lows and its inverse relationship to stocks, gold makes for a solid portfolio stabilizer.

Risks of investing in gold

Most gold stocks are vulnerable to the same risks as other mining stocks, namely: economic shifts, geopolitical changes and natural disasters.

Where a mine is located factors heavily into its potential profitability, with many mining companies managing international operations. The political climate of the country in which a gold mine is located can affect material prices and businesses processes.

Gold mining companies also need to contend with Mother Nature. Natural disasters, while uncommon, may sideline mine operations for months, depending on the extent of the damage.

Gold stocks

Since gold mining is an international enterprise, be prepared to invest in companies headquartered outside the US: Select a company to learn more about what they do and how their stock performs, including market capitalization, the price-to-earnings (P/E) ratio, price/earnings-to-growth (PEG) ratio and dividend yield. While this list includes a selection of the most well-known and popular stocks, it doesn't include every stock available.

What ETFs track the gold category?

Stocks aren’t the only option for investors interested in gold — there are numerous ETFs that track the gold category. These ETFs follow numerous sub-categories of the industry, including mining companies, exploration companies and the asset itself:

  • Global X Gold Explorers ETF (GOEX)
  • iShares Gold Trust (IAU)
  • iShares MSCI Global Gold Miners ETF (RING)
  • SPDR Gold Trust (GLD)
  • Sprott Gold Miners ETF (SGDM)
  • Sprott Junior Gold Miners ETF (SGDJ)
  • VanEck Vectors Gold Miners ETF (GDX)
  • VanEck Vectors Junior Gold Miners ETF (GDXJ)

    Outside of stocks and ETFs, there’s also the option of purchasing physical gold, including coins, ingots and bars. If you plan to buy physical gold, make sure you have a secure place to store it before you invest.

    Compare trading platforms

    To buy gold stocks, you’ll need a brokerage account. Narrow down your options by comparing features and fees.

    Name Product Stock trade fee Asset types Option trade fee Annual fee
    Vanguard
    $0
    Stocks, Mutual funds, ETFs, Forex
    $1
    $20 per year
    Get a personal advisor when you open an account with at least $50,000.
    Sofi Invest
    $0
    Stocks, ETFs, Cryptocurrency
    N/A
    0%
    A free way to invest in stocks, ETFs and crypto.
    Robinhood
    $0
    Stocks, Options, ETFs, Cryptocurrency
    $0
    0%
    Make unlimited commission-free trades in stocks, funds, and options with Robinhood Financial.
    Interactive Brokers
    $0
    Stocks, Bonds, Options, Mutual funds, Index funds, ETFs, Futures, Cash
    $0 + $0.65/contract, $1 minimum
    0%
    IBKR Lite offers $0 commissions, and IBKR Pro offers advanced tools for professional traders.
    TD Ameritrade
    $0
    or $25 broker-assisted
    Stocks
    $0 + $0.65/contract,
    or $25 broker-assisted
    TD Ameritrade features $0 commission for online stock, but watch out for high short-term ETF and broker-assisted trading fees.
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    Compare up to 4 providers

    Disclaimer: The value of any investment can go up or down depending on news, trends and market conditions. We are not investment advisers, so do your own due diligence to understand the risks before you invest.

    Bottom line

    No investment is free from risk, and gold stocks are no exception. Before you buy in, weigh the potential benefits against the risks to determine whether gold stocks are a practical addition to your portfolio.

    Compare brokerage account features and fees to find the trading platform best suited to your investment goals and budget.

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