Best Way to Invest in Gold….the Miners or the Metal?

The price of gold tends to move higher when economic conditions worsen which is why the metal has long been recognized as a way to diversify a portfolio and offer a safe haven to investors. You may be considering investing in gold yourself and are wondering what route is better: the metal or a gold metal miner. This is a decision that is hard to make because both can be very worthwhile investments however the metal may have some disadvantages that make mining players a smarter investment.

Limited supply can make the gold market both thin and volatile. This especially happens if the demand grows sharply. What this means is that there are fewer traders who influence the market and they can drive the price up and down very fast. For this reason, gold can become a bubble and when it bursts, the investor can lose a lot of money. It is better to avoid asset bubbles that can dramatically rise in price in a short period of time when not supported by the value of the product. Gold mining stocks on the other hand have underlying earnings and real estate to back them.

 

Due to this, many investors choose gold mining stocks and also because they appreciate many times faster than physical gold. Mining companies are big users of energy to produce gold and with energy costs so low, their product costs are also going down. A mining company’s production costs are tied to energy prices. With low production costs and high gold prices, mining companies are able to really take advantage here.

There are all kinds of gold mining stocks in the market that come with various market caps.  Some have just a single mine that depend upon solely, while others have massive operations with mines all over the world. Two of the biggest companies in the space are Newmont Goldcorp and Barrick Gold. Newmont has doubled in price in the last year while Barrick Gold has nearly tripled in price.

One of the fastest ways to get access to gold with a limited amount of investing capital is by looking toward the small cap miners. Smaller mining companies have historically appreciated a lot faster compared to large industry players when the price of gold rises. They have been capable of seeing gains north of 100 percent. Sometimes all it takes is for a junior gold miner to report a new discovery from one of its holes that has a high grade of mineralization. One big strike and it could mean massive movement for the company’s share price.

A huge gold enthusiast is Canada’s legendary mining billionaire Eric Sprott, who has rose to fame with his interest in junior gold miners. According to Sprott, these companies could be on the verge of striking the ‘motherlode.’ Sprott has spent over C$100M on over a dozen gold and silver explorers since May of 2019 according to Oreninc. When asked of his gold investment spree, he remarked, “It’s like being at a table with a winning run.”