For centuries, gold has been a reliable store of value and a great symbol of wealth. And during times of economic uncertainty, investors have flocked to gold as a safe haven asset.
That’s because gold has historically provided a strong hedge against inflation and potential currency devaluation.
According to the U.S. Bureau of Labor Statistics, between 2008 and 2012 – following our last significant financial crisis – the value of gold increased dramatically. The chart below shows a 101.1% surge in the Producer Price Index (PPI) for gold:
As the value of currencies decline, the value of gold tends to rise. With the unprecedented levels of government spending over the past several years, inflation concerns have been rising. Investing in gold can provide protection against the eroding value of fiat currencies.
“Gold prices can act as an indicator of the health of the economy. A rise in the price of gold may be a signal that the economy is struggling. As a result, in times of either a crisis or inflation, many investors turn to gold to protect their principal.” — Former Fed Chairman Ben Bernanke
Gold’s traditional role as a safe haven for wealth is another strong reason why investors should consider investing today.
The price of gold is being driven up presently thanks to the recent collapse of Silicon Valley Bank and the questions about the stability of the banking industry that have arisen as a result.
As investors worry about the potential for further banking industry instability, many are fleeing to the safety of gold.
Another important reason for investing in gold is the diversification benefits it can provide to your portfolio.
Gold often moves in the opposite direction of stocks and bonds, meaning that when equities are underperforming, gold tends to perform well. This diversification can help to reduce overall portfolio risk.
The Most Impactful Ways to Gain Exposure to Gold
There are a number of ways investors can gain smart exposure to gold at a level that is comfortable. These include…
- Investing in Physical Gold – Investors can purchase physical gold in the form of coins or bars from any number of well-known dealers. While this method of investing in gold requires storage and security, it provides investors with the advantage of direct ownership.
- Exchange Traded Funds (ETFs) – One of the easiest ways to invest in gold is through ETFs that track the price of gold. Some of the largest gold ETFs include the SPDR Gold Trust (GLD) and the iShares Gold Trust (IAU). These ETFs invest in physical gold and provide investors with a low-cost way to gain exposure to the precious metal.
- Major Gold Producers – Investing in major gold producers is another way to gain exposure to the precious metal. Some of the largest gold mining companies in the world include Newmont Mining Corporation (NEM), Barrick Gold Corporation (GOLD), and AngloGold Ashanti Limited (AU).
- Junior Exploration Companies – For those looking for more upside potential – and willing to tolerate additional risk – investing in junior exploration companies can provide higher returns. Junior exploration companies are typically involved in the early stages of gold exploration and may have significant upside potential if they discover a new gold deposit.
For those looking to get started, what follows is a list of 3 potential gold investments for you to consider today. As always, be sure to do your own due diligence before making any investment to make sure it’s right for your financial situation and that it is consistent with your acceptable level of risk.
Top Gold Investment #1: VanEck Gold Miners ETF (GDX)
The VanEck Gold Miners ETF (GDX) is an exchange traded fund that provides exposure to gold mining companies. The fund was established in May 2006 and trades on the NYSE Arca exchange.
The investment seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the NYSE® Arca Gold Miners Index.
The fund normally invests at least 80% of its total assets in common stocks and depositary receipts of companies involved in the gold mining industry.
The index is a modified market-capitalization weighted index primarily comprised of publicly traded companies involved in the mining for gold and silver.
Top Gold Investment #2: Franco-Nevada Corporation (NYSE: FNV)
Franco-Nevada Corporation (NYSE: FNV) operates as a gold-focused royalty and streaming company in Latin America, the United States, Canada, and internationally. It operates through Mining and Energy segments.
Rather than mining the assets, Franco-Nevada provides upfront capital to mining firms in exchange for either a percentage of sales (royalty) or a cut of the physical precious metals (streaming).
The company manages its portfolio with a focus on precious metals, such as gold, silver, and platinum group metals; and engages in the sale of crude oil, natural gas, and natural gas liquids.
According to its latest earnings report (Q3 2022), the company had $1.06 billion in cash. Notably, its total liabilities count measured only $192 million. Moreover, Franco-Nevada was FCF positive to the tune of $229 million.
Top Gold Investment #3: SPDR Gold Shares ETF (GLD)
The SPDR Gold Shares ETF (GLD) tracks the price of gold bullion in the over-the-counter market. The trust that is the sponsor of the fund holds physical gold bullion as well as some cash.
GLD tracks the price of gold by holding gold bullion in a trust kept in the form of London Gold Delivery bars of 400 ounces, held in an allocated account. The physical gold is held by the custodian in a vault in London or in the vaults of other sub-custodians.
GLD was the first ETF to track the price of gold and began trading in 2004. The fund has an expense ratio of 0.4%.