How to invest in Gold?

How to invest in Gold?

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When Trump won the US presidency I expected the markets to take a beating. It did not. If he were to implement some of the ideas he talked about during his campaign it will hurt the American dollar, but there is also a very strong argument that the US economy will be in a strong state due to the proposed 15% corporate tax rate.

Gold is something you invest to guard against inflation, and at times of uncertainty. So let’s take a look at how one can invest in Gold.

  1. You can invest in Gold Mining companies. Companies such as Barrick Gold Corp ( TSX:ABX) or Newmont Mining (NEM) .  I am looking at gold investing as a possible hedge – to protect against the value of my stocks decreasing due to bad economic conditions. As such I want to be careful about investing in a company that correlates with gold prices. You would expect gold mining companies to go up when gold goes up, and they do but not always in the same magnitude. There are both good and bad in investing in such companies vs gold. Good – the companies may be able to pay you dividends, and can even do better than gold depending on how it is run etc. Bad – The companies may not go up in the same magnitude as gold – there is a cost for management, how efficient the companies are operated etc.  I am interested in NEM – I noticed it dropped about 8.91% last Friday. Will look into it further below. I am not interested in Barrick Gold based on the amount of debt it holds, and the outlook posted by the analysts I follow. Barrick Gold has a neutral outlook where as NEM has an outperform outlook. I depend on the analysts I follow to do a lot of initial analysis. My picks are usually based on second hand research 🙂 .
  2. You can always buy gold bullions from anywhere you can purchase gold from (jewelry stores etc.). I have no interest in physically holding the asset. Many people do.
  3. Another way to invest in Gold is through an Exchange Traded Fund (ETF) that tracks the price of gold. One good one is GLD –  https://ca.finance.yahoo.com/q?s=GLD .

NEM

  • This is the only Gold stock in the S&P 500.
  • The drop last Friday ( 11/11/2016 ) is directly tied to gold prices. Gold bullion dropped $32 per ounce. More details in this article on The Motley Fool.
  • NEM has 5.1 billion in debt as of 3rd  quarter. Its long term debt to equity ratio is higher than that of the industry average for this ratio,  and its total debt to equity is lower than that of the industry average. It has a higher percentage of long term debt compared to its peers. Even though it has a high amount of debt it has a very strong liquidity position, it had a cash  balance of 2.1 billion at the end of the 3rd quarter, which gives me some comfort that it will be able to comfortably service its debts.
  • It reported 3rd quarter results on Oct.26th. It reported strong production and cash flows but missed analysts’ estimated EPS due to higher than excepted costs.
  • Dividends : I am actually looking to invest more and more in stocks that pay dividends after my unexpected gain from dividends in Enbridge. You can read about it here  . NEM has declared a December dividend of 5 cents quarterly, and an annual dividend of 30 cents at gold prices of $1250 – 1300. That is about 1.5% of  return from dividend . Not as big as some of the other companies out there but still can contribute to total return.

GLD

  • The current price estimate of Gold by the analyst I follow is around $1264/oz. The current price in the market is $1221.30 / oz. This gives me about a 3.5 % return.
  • One thing to remember about investing in gold is that it is not merely for the returns. It is always a good investment to hold when you are holding equities.
  • Investing in GLD is investing in gold prices . I think I prefer to invest in a company than a fund that is tracking the gold prices.

My choice to invest is NEM. It is taking a beating in the markets today. Down about 3% so far, I am not trying to time the buy price. Since I have logically come to the conclusion of buying this stock, I placed a buy order at the range of the current trading price – around $30.50. Once the order goes through I will not stress about whether I could have gotten a better entry price – I have learned over time this is pointless.

This company will take a beating if Trump’s presidency turned out to be good for the economy, however it will also benefit from the 15% corporate tax rate and from trade restrictions that Trump has outlined during his campaign.

Update: I bought this stock earlier today at $30.50 and it is currently trading at $32.72 at the time of me updating my blog ! I wrote this post earlier today and just had time to update my blog.  I have never had a stock run up 7% within a few hours of me purchasing the stock . Initially when I was placing the buy order the stock was trending down. Talk about volatility !

4 thoughts on “How to invest in Gold?

  1. How timely. I was looking into gold for the first time.
    TSE:K And TSE:G
    I bought K at $4.60 and when it dropped, I thought it was not for me. Now it’s at $4.81
    Any insights?

  2. I like NEM, and I sold it today. I was lucky enough to get into it at a good price and it had run up 9% in a day so thought it was a good time to take profit. I may go back in it if I find a good entry point.
    I am not familiar with the two companies mentioned, but I will take a look at them and share my thoughts.

  3. I subscribe to a research service and usually base my picks on the research reports and some external research. For K – TSE : Kinross Gold Corporation – they currently have a price of $8 and a rating of outperform. They are exposed to both Russia and Africa. Since these are mining companies there is always a risk depending on where the mines are located. Goldcorp (G TSE) currently has an under perform rating. It is exposed to Mexico and given the drop in their currently that may work out favorably for them . Seems like they are having issues with some of their mines and need to get that sorted out. This is based on a quick check :). Personal view, it would be a good idea to own some gold at any time. I spend some time on NEM and I like their fundamentals, but I like the idea of picking a Canadian producer so we can avoid exchange risk.

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