Owning physical gold is expensive and complicated. So, gold stocks can play a key role in a diversified investment portfolio.
A lot of people view gold stocks as a great alternative to investing in the precious metal itself. The share prices of gold mining and production companies do not necessarily respond as quickly to changes in the value of gold, which means they can be an effective way to hedge exposure to gold prices. There are even those who believe that gold stocks have the potential to outperform gold itself.
There is quite a bit you should know before you dive in. If you want to invest in gold stocks right away, here is a quick guide that can help.
Getting Started with Gold Stocks - Quick Guide
- Research your gold stocks – Shortlist the best gold stocks for 2024 using strict criteria.
- Define your strategy – trading lets you speculate on the price movement; dealing lets you take direct ownership of the stocks.
- Take your position – create an account with us to buy and trade in gold stocks.
What Is a Gold Stock?
Gold stocks are shares of companies involved in the gold industry, either a mining corporation, gold Mutual Funds, or Exchange Traded Funds. It basically means that you own a certain part of the company, and you are entitled to any profit or loss that comes out of your investment in the gold stocks.
The industry consists of the following types of entities:
- Mining companies: These companies mine and sell gold.
- Gold-focused exchange-traded funds (ETFs): These funds own physical gold or shares of several gold mining companies.
- Gold streaming and royalty companies: These companies pay up-front fees to mining companies in exchange for:
-A percentage of the mine’s revenue, e.g., a mining royalty.
-The right to purchase the future production of a specific metal at a certain mine for a fixed price, e.g., a mining stream.
How to find the best gold stocks?
There are many benefits to buying gold stocks instead of the physical metal to reap the perks of investing in gold. Gold companies can potentially generate higher total returns than an investment in physical gold. That’s because these companies can expand their production and reduce costs. These factors can enable gold mining companies to increase their profits, enabling their stock prices to outperform the price of gold.
However, not all gold stocks outperform gold. Because of that, investors need to carefully choose the best gold stocks to buy. The best gold stocks should meet the following requirements:
High solvency ratios
Since gold companies may have large debt obligations, the solvency ratio checks to make sure they have enough cash flow to pay those obligations without running into trouble. Solvency ratios above 20% is an indicator that gold companies can meet their short-term and long-term financial obligations.Strong dividend ratios
Sustaining a dividend ratio of at least 1% shows that the best gold stocks are stable enough to pay out profits to shareholders. Note that the cyclical nature of the business means that gold stock dividends are rarely stable.
Competitive price performance
Gold stocks are notoriously volatile and cyclical, but the best ones have sustained a rising price trend despite any volatility.Positive and increasing sales and earnings
A demonstrated history of rising sales and earnings separates the best gold stocks from the rest. The best gold stocks have increased sales by at least 40%, and earnings by 100%, over the last five years.Minimum stock criteria
Shares must be listed on the major stock exchanges have prices of at least $5, and trade at least 200,000 shares daily.
Experts recommend looking for P/E ratios relative to the five-year trend as a secondary screening criterion. This provides some perspective on how each stock’s valuations look now relative to the most recent history. Also, look for companies with stable amounts of outstanding shares when possible. This was not a requirement, but it is nice to have.
Gold is a cyclical commodity, and companies in the industry also tend to be cyclical. Their profits rise when gold prices are high and decline when gold rate decrease in coming days. Keep this in mind when using P/E ratios.
- If you are looking to buy and hold gold stocks in your portfolio over the long term, you should be mindful of the industry’s volatile nature.
- If you only want to trade in gold shares and ETFs on leverage with derivatives, technical analysis, momentum, and risk/reward ratio are the main filters.
Top Gold Stocks for November 2024
Here are the top for gold stocks with the best value, fastest growth, and most momentum.
Barrick Gold Corp (ABX)
Barrick Gold Corp (ABX) is one of the largest companies in the gold mining industry – both in terms of its operating size and the amount of gold produced. Barrick Gold Corp has operations across the globe, with mines in the US, Tanzania, Canada, the Democratic Republic of Congo, Mali, and Argentina – to name a few.
Barrick Gold currently trades at its most attractive valuation since 2018, but the company is in much stronger shape than it was four years ago. This is because it has a new CEO that's helped it transform its balance sheet and consolidate Nevada operations to provide synergies to handle difficult periods like the current one.
The company’s net cash position (cash less debt) stood at over $600 million at the end of Q2 2022.
Analysts see Barrick as a company with sharply declining costs and improving margins even in a weak gold price environment. Barrick’s move to scale up its copper business could drive some upside for the stock.
Trade Barrick Gold Corp shares CFD I Invest in Barrick Gold Stock
Newmont
Newmont Corporation is the world's largest gold mining corporation. Incorporated in 1921, it owns gold mines in Nevada, Colorado, Ontario, Quebec, Mexico, the Dominican Republic, Australia, Ghana, Argentina, Peru, and Suriname. According to barrons.com, this gold stock is too cheap to ignore and maybe the safest way to bet on a gold revival. It bulked up in 2019 via its acquisition of Goldcorp, gaining new mines, people, and infrastructure.
Newmont’s stock is down by almost 50% from highs seen in April 2022 and currently trades at an attractive valuation considering that Newmont is the world’s largest gold miner, with high-quality assets. The company’s gold mineral reserves stand at about 93 million ounces, a generous portion of which is in low-risk regions such as North America. The company has also consistently raised its gold production, with plans to boost production from around 6 million ounces in 2022 to as much as 6.8 million ounces by around 2025.
Trade Newmont Corporation Shares CFD I Invest in Newmont Stock
Agnico Eagle Mines
Agnico Eagle Mines Limited is a Canadian-based gold producer with operations in Canada, Finland, and Mexico and exploration and development activities extending to the United States. Agnico Eagle has full exposure to higher gold prices consistent with its policy of no-forward gold sales.
Agnico Eagle Mines is down more than 50% from its highs, a decline that is completely detached from fundamentals. This is because the company has one of the best track records sector-wide, already has an incredible portfolio of assets, and has now added three of the best mines globally.
The most recent move by Agnico might have caught some off guard, but it looks promising, adding exposure to an extremely high-margin project in a very friendly mining state.
Agnico is ahead of plans on synergies and reported a massive increase in reserves at what could be a million-ounce per annum mine. Meanwhile, it has a track record that most can't match, going from a one-mine company to an eleven-mine company in 16 years with very modest dilution, with an additional three mines in the wings.
Given the extreme valuation disconnect (~7.0x cash flow) for a business with peer-leading margins, organic growth, and jurisdictional risk. Therefore, is one of the most promising gold stocks for 2023.
Trade Agnico Eagle Mines Shares CFD I Invest in Agnico Eagle Mines Stock
Franco-Nevada
Franco-Nevada is a Canada-based streaming and royalty company. It has a diversified portfolio, with agreements tied to gold, silver, platinum group metals (PGMs), iron ore, and oil and gas. In the second quarter of 2022, 54% of its revenue came from gold.
A major benefit of Franco-Nevada's focus on royalties and streaming is that it reduces risk. It does not face the capital and operating cost overruns that have historically plagued mining companies. At the same time, Franco-Nevada’s agreements position it to profit as its mining partners complete exploration and expansion projects.
Franco-Nevada's streaming and royalty contracts provide it with the ability to generate lots of cash by selling the physical commodities it receives. That cash flow enables it to invest in new deals and pay a dividend.
Franco-Nevada has increased its dividend each year since its initial public offering (IPO) in 2008, hitting a milestone of 15 consecutive years in 2022. The company also boasts a debt-free balance sheet -- a rarity in the mining industry -- giving it even more financial flexibility to invest in new royalty and streaming agreements.
Because Franco-Nevada can benefit from gold mining without exposure to the risks of mine development, its stock has historically outperformed the price of gold and other gold mining stocks. All of these factors make it one of the best gold stocks in 2023.
Trade Franco-Nevada Shares CFD I Invest in Franco-Nevada Stock
VanEck Vectors Gold Miners ETF
The VanEck Vectors Gold Miners ETF holds the stocks of large gold mining companies. It’s one of the largest gold ETFs, with about $11.3 billion in assets as of mid-2022.
At that time, the VanEck Vectors Gold Miners ETF held shares in 54 gold mining companies. Its top five holdings by value were:
- Newmont Goldcorp
- Barrick Gold Corporation
- Franco-Nevada Corporation
- Agnico Eagle Mines
- Wheaton Precious Metals
The five gold stocks make up more than 42% of the ETF’s assets, with Newmont Goldcorp accounting for more than 12%. The gold stocks have market capitalizations ranging from Newmont Goldcorp’s $37 billion to Wheaton Precious Metals’ $15 billion.
Except for Wheaton and Franco-Nevada, these top holdings are the world's largest gold mining companies. Agnico vaulted up the list in 2022 by completing its merger with fellow gold miner Kirkland Lake Gold. Franco-Nevada and Wheaton are the leading gold streaming and royalty companies.
The gold ETF enables investors to easily own a diverse, high-quality group of large-scale gold companies. The ETF also has a reasonable expense ratio of 0.51%, making it a cost-effective way to invest in many gold stocks.
Note: Experienced financial analysts selected the gold stocks above, but they may not be right for your portfolio. Before you purchase any of these stocks, do plenty of research to ensure they align with your financial goals and risk tolerance.
Gold Stocks Prices - The Impact of the U.S. Dollar
The U.S. dollar, or greenback, has had a longstanding relationship with gold dating back to the introduction of the gold standard in the 1880s, where paper money was linked to a specific amount of the yellow metal. Although former president Franklin D. Roosevelt removed the gold standard in 1933, the Greenback still closely correlates with gold—and subsequently, gold stocks—as the metal is priced in U.S. dollars.
Typically, a strong U.S. dollar means weaker gold prices as demand for the precious metal eases from buyers using foreign currencies. Conversely, demand increases when the greenback loses value, making gold cheaper for offshore buyers.
Although the U.S. dollar index and gold price often have an inverse relationship, both can move in the same direction. For example, during periods of global uncertainty, both assets may rise as investors flock to safe-haven investments.
Due to its finite supply, gold is seen as a hedge against inflation, while the greenback's status as the global reserve currency makes it sought after during times of risk aversion.
How to Invest in Gold Stocks
There are two routes to investing in gold stocks: speculating on their prices using CFDs or buying the assets in the hope they increase in value.
Trading gold stocks using CFDs
A CFD is a contract in which you agree to exchange the difference in the price of an asset from when you first open your position to when you close it. You are speculating on the price of the market rather than taking ownership of the stocks. If you open a long position and the stock or ETF does increase in value, you’ll make a profit, but if it falls in price, you’ll make a loss – the opposite is true for a short position.
Buying gold stocks and ETFs
This means that you take ownership of a portion of the company or fund outright, with the intention of holding it with a brokerage and profiting if it increases in value.
Get Started with CAPEX.com
Here is how to trade and invest in gold stocks with an international, highly regulated broker like CAPEX.com:
- Choose which type of account you want to use. Your first concern should be your risk appetite and time horizon. If you want to buy and hold gold stocks, open an investing account. If you want to speculate on price movements (including falling prices) with zero commission and leverage, open a CFD trading account.
- Create an account. Regardless of your chosen account, you need to register and complete the KYC process to verify your identity.
- Fund your account with fiat money. Before buying and trading any gold stock, you need to fund your exchange account with U.S. dollars, Euros, or other currencies.
- Select your stocks. We strongly recommend that you thoroughly research the gold stocks that suit your portfolio and risk appetite. Alternatively, investors can buy shares in gold-related exchange-traded funds (ETFs).
- Place a buy order for your chosen stock. Follow the steps required by the trading platform to submit and complete a buy order.
When trading stocks, the CFDs (contracts for difference) are stored in your account and are more liquid than the underlying asset. However, you should be aware that CFD trading is fast-moving and requires close monitoring. As a result, traders should be aware of the significant risks when trading CFDs. There are liquidity risks and margins you need to maintain; if you cannot cover reductions in values, your provider may close your position, and you'll have to meet the loss no matter what subsequently happens to the underlying asset.
With CAPEX, you can trade CFDs on +2.000 stocks and invest in +5.000 stocks and ETFs with ownership.
Are gold stocks right for you?
Broadly speaking, gold stocks come with the same risks as other stocks. If you’re looking for growth potential, then there are some promising opportunities in the market. But as with any industry, there is also the potential for low revenues and disruptions to the supply chain, which can affect gold-stock prices.
Many factors affect the price of gold, including monetary policy and inflation. For years, gold was the top choice of investors seeking to hedge against these risks. However, the rise of cryptocurrencies could cause gold and other precious metals to lose their luster, an emerging risk that investors need to monitor.
That aside, one of the best ways to invest in the gold market is through gold mining companies. That is because they benefit from rising gold prices and their ability to increase production and reduce costs. Consequently, top gold mining companies can often outperform the price of gold. The top-tier gold miners have low-cost structures, manageable debt levels, and limited exposure to risky mining projects.
Meanwhile, gold streaming companies offer the best risk/reward potential among gold-focused investment options. They are well-positioned to benefit from higher gold prices without assuming the risks associated with mining physical gold.
Finally, investors who don’t want to try to identify the best individual gold mining stocks can consider buying shares in gold ETFs, which are more convenient and cost-effective options for investing in gold stocks. A gold ETF offers broad exposure to the sector by owning either shares of gold mining companies or physical gold. Because of the wide availability of gold stocks and ETFs, you don't have to be a stock-picking guru to participate in the gold industry's upside.
Free resources
Before you start investing and trading in gold stocks, you should consider using the educational resources we offer like CAPEX Academy or a demo trading account. CAPEX Academy has lots of free trading courses for you to choose from, and they all tackle a different financial concept or process – like the basics of analyses – to help you to become a better trader or make more informed investment decisions.
Our demo account is a suitable place for you to learn more about leveraged trading, and you’ll be able to get an intimate understanding of how CFDs work – as well as what it’s like to trade with leverage – before risking real capital. For this reason, a demo account with us is a great tool for stock investors who are looking to make a transition to leveraged trading.