It is possible to make a lot of money investing in gold and it is possible to lose your shirt in the gold market. In times of social and economic uncertainty gold is an attractive alternative to stocks or holding cash. But when the stock market is hot, gold is usually a losing proposition. How to make money in gold investments has to do with timing, your investment time horizon and the vehicle you use to invest. In August of 1999 an ounce of gold was worth $256. At the end of July in 2016 an ounce of gold sells for $1,314. How to make money in gold investment might have been to buy in 1999 and sell today but there is more to the story.
Gold versus Stocks
Reuters reports that gold slips as stocks rise. This is earnings week for the stock market and both the Federal Reserve and Bank of Japan are meeting.
Gold fell on Monday as the dollar firmed and a recovery in risk appetite supported world stock markets near nine-month highs ahead of central bank meetings in the United States and Japan. The world’s major economies pledged at a G20 meeting this weekend, dominated by Britain’s vote last month to leave the European Union, to use all policy tools available to boost growth. That lifted both shares and the dollar. Spot gold was down 0.7 percent at $1,313.96 an ounce at 1400 GMT, while U.S. gold futures for August delivery were down $9.90 an ounce at $1,313.50.
When stocks are hot gold tends to fall. How to make money in gold investments is obviously to invest when gold is weak and sell when it is high. But are there other options aside from buying and selling gold bullion?
Gold ETFs are a reasonable way to buy and sell gold. Investopedia looks at the relationship between gold and gold ETFs.
Exchange Traded Funds (ETFs) give traders access to the percentage price movements of physical gold, without having to buy physical gold or futures contracts. Instead, the ETF does this for the investor.
Gold ETFs are typically structured as a trust. Under this structure, the ETF holds a certain amount of gold for each share of the ETF that is issued. Buying a share means owning a portion of the gold held by the trust.
The advantage of buying shares in a gold ETF is that you do not need to pay for storing your gold bars or endure a wait while you buy or sell and take or give up possession. To a degree holding gold bullion is a doomsday investment while ETFs are how to make money in gold investments without the overhead of holding gold bullion. You simply buy and sell shares of the ETF as you would common stocks.
A common rap against holding gold is that it produces no income while you wait. With this thought in mind an alternative to buying gold or shares in an ETF is to buy shares in a gold mining company. Gold mining stocks rise and fall with the price of gold. In fact gold mining stocks typically rise faster than gold itself in a bull market but they also fall faster in a bear market. US News wrote about gold miners at the start of this year as gold started to rise. An interesting aspect of gold mining is that much of it occurs outside of the USA and the costs of operation are in local, and weaker, currencies.
Day cautions would-be investors to look at corporate balance sheets of gold miners if metal prices rise. A strong move up in gold can cause the miners with the most debt and highest cost of production to see their stock values rally the most.
“A small move in the price [of gold] makes a big difference if your cost of production is marginal,” he says. “If you produce gold at $600, your profit doesn’t go up much if gold moves from $1,100 to $1,200. But it makes a huge difference if your cost of production is $1,150.”
How to make money in gold investments includes careful analysis of gold mining operations and selective investments.