Learn How to Buy Gold Stocks – Part 2

Learn about the various methods of buying gold stocks

 As a general rule, anyone can invest in gold in 3 different methods: buying stocks in gold mining companies, acquiring gold exchange trading funds, or investing in gold mutual funds.

Surely, there are both pros and cons to any of these methods. Buying stocks in mining companies comes with direct exposure to risk, while mutual funds typically come with less risk and better diversification.

Gold Mining Companies

The direct way of investing in the precious metal is buying stocks in companies that mine gold. This method involves both high risks and high potential profits at the same time. Investing in a mining company means you are betting on the company’s ability to continue earning profits, rather than diversifying your investments over multiple companies. A comprehensive analysis of the company and its earnings reports is extremely necessary, because it needs to perform better than its competitors.

It is important to look for things such as production costs and the company’s productivity levels. A strong company must be able to increase its production annually. Strong production means higher revenues and lower costs.

Gold investment funds

If you prefer a lower risk type of investment, you can choose to invest in a mutual gold investment fund. These funds will usually have portfolios of companies that mine, process and distribute gold. Among the benefits to buying mutual funds in gold:

• Gold mutual funds offer you the possibility to diversify your portfolio much more than buying into a single company.
• They are professionally managed and the fund manager will select a list of shares that can be expected to perform well and achieve profits.

Gold oriented ETFs

An exchange-traded fund is similar to a mutual fund, as it provides the investor with access to a wide range of stocks and bonds for a fairly decent price. Some ETFs buy and store gold themselves, while others are trading mainly in futures contracts.

Keep in mind that actually purchasing gold involves storage costs and reflects the current price situation, while futures are financial instruments that reflect expected future prices.

• ETFs are different from mutual funds because they are publicly traded on the markets, just like stocks
• Gold ETFs will most usually involve lower fees than mutual funds, simply because they do not need a portfolio manager
• ETFs are a good option if you want better flexibility and lower fees. Gold ETFs mean not only investing in gold itself, but also various gold mining companies.

Stay tuned for more articles on investing and trading on the global financial markets.