When investors are looking from stability, they often look to gold. Gold's value doesn't come from corporate earnings, interest rates or currency markets. Gold has been the go-to hedge for millennia, and it may still be able to play that role today.
But there are several different ways to buy gold — and if you don’t want the hassle of owning physical gold bullion or trading gold futures, there’s a good chance you’ll be curious about gold stocks.
What are gold stocks?
Gold stocks are shares of publicly-traded companies that are involved in gold production. Some gold stocks are miners; this group can be further divided into junior (upstart) miners and senior (established) miners.
Others are gold streaming companies who don’t do any gold mining themselves, but rather invest in gold mining royalties from other firms.
7 best gold stocks by one-year performance
Below is a table of the 7 best-performing gold stocks in the NYSE Arca Gold Miners Index that are listed on major U.S. exchanges, ordered by one-year performance.
Ticker | Company | Performance (Year) |
|---|---|---|
CDE | Coeur Mining Inc | 146.59% |
NGD | New Gold Inc | 136.79% |
HMY | Harmony Gold Mining Co Ltd ADR | 131.89% |
IAG | Iamgold Corp. | 100.00% |
EGO | Eldorado Gold Corp. | 80.63% |
KGC | Kinross Gold Corp. | 76.56% |
Source: Finviz. Data is current as of market close on Aug. 30, 2024, and is intended for informational purposes only, not for trading purposes.
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Types of gold stocks
Junior miners
Junior miners are typically small gold mining companies who are often searching for new gold deposits — or setting up new mines — before their financing runs out.
Investing in a junior miner can be kind of like investing in a tech startup or a small-cap biotech stock. It’s a high-risk, high-potential-reward, race-against-the-clock proposition.
Some junior miners, like Alamos Gold (AGI), get multiple mines up and running and grow into senior miners. And in the case of AGI, that meant delivering triple-digit returns to shareholders. Others, like Pure Gold, run out of money and shut down before they start digging up gold consistently, leaving shareholders with nothing.
Senior miners
Gold mining companies that are consistently producing gold are known as senior miners.
Because their operations are more well-established than junior miners, they’re not as speculative, “everything-or-nothing” investments. Instead, many senior mining stocks, such as Harmony Gold (HMY) and Kinross Gold (KGC), basically just move along with the market price of gold — but generally with much more volatility (higher highs and lower lows).
Some senior miners act as gold mining venture capital firms, investing in junior miners.
Gold streaming companies
Unlike junior and senior miners, gold streaming companies don’t do any digging. Rather, they provide financing to the people who do the digging.
Gold streamers provide miners — especially junior miners who are struggling to find seed capital — with upfront cash payments. In exchange, they get a share of whatever the miner digs up.
Like senior mining stocks, gold streaming stocks tend to track the market price of gold. They also tend to be high-dividend stocks. Some, such as Franco-Nevada (FNV), have increased their dividend every year for more than a decade, and are well on their way to becoming dividend aristocrats.
Pros and cons of investing in gold stocks
Gold stocks behave very differently than other kinds of stocks — but they’re also definitely not the same thing as gold bullion. Given this neither-fish-nor-fowl status, gold stocks have a unique set of pros and cons.
Pros of gold stocks
Many pay dividends: In fact, most of the gold stocks listed above pay dividends. That’s one of the major advantages of gold stocks over gold bullion and futures.
No maintenance or security costs: Another advantage of gold stocks over gold bullion is that you don’t have to physically look after your gold stocks. Keeping gold jewelry or coins clean and safe often costs money — and that eats into your returns.
Low price-correlation with major stock indexes: Gold stock returns are far more closely correlated with gold bullion returns than they are with the returns of the broader stock market, which can potentially make them an effective hedge against market trends. In other words, gold stocks generally don’t move in sync with the , which can make them a good thing to own when the S&P 500 is down.
Cons of gold stocks
Not bullion — still some correlation with other stocks: Gold stocks do behave more like gold than they do like other stocks, but they’re not quite as independent of the stock market as gold bullion is.
May not hold value in a severe crisis like bullion: One advantage of gold bullion is that people instinctively want it because it looks pretty. In the event of a disaster that disrupts banking and financial markets, such as a war, gold bullion can still be used to barter for goods, services or passage to a safe place. Gold stocks are more abstract as an asset, and may not have any easily-redeemable value in such a crisis.
Complicated to research: You should always research stocks before buying, and gold stocks take a lot of work to research. The market price of gold can have major effects on the price of a gold stock. In addition to keeping track of all that, shareholders also have to stay on top of the usual company data — revenue, earnings, costs, debt and so on.
How to buy gold stocks
If you’re just starting out as an investor, the first step to buy gold stocks is to open a brokerage account. Once you’ve done that, you’ll need to decide between buying individual gold stocks or exchange-traded funds (ETFs).
Individual gold stocks
Individual stocks can potentially offer higher returns than index funds. All seven of the gold stocks listed above are outperforming the S&P 500 over the last year.
However, they also come with more volatility and risk than index funds, especially if you're day trading. They may also be more expensive to purchase (especially if you’re buying multiple gold stocks through a brokerage that doesn’t offer fractional shares) and more time-consuming to properly research.
One general rule-of-thumb to balance these considerations is to devote no more than 10% of your overall portfolio to individual stocks.
Gold stock ETFs
Gold ETFs can give investors access to dozens of gold stocks with a single purchase. It’s still important to research gold ETFs before investing, as they come in a few different varieties. Some gold ETFs contain gold mining stocks, but others invest in gold futures or bullion instead.
Neither the author nor editor held positions in the aforementioned investments at the time of publication.
