Gold prices experienced a slight drop after an impressive rally throughout the summer but are still hovering well-above lows experienced in previous years. Although market bears would consider the price decrease a red flag, others believe this recent softness offers investors a good entry point into the market of gold stocks.
The fact is, regardless of price fluctuations, adding gold stocks to your portfolio can provide a safe haven against market volatility and are an important part of a diversified portfolio.
But, how do you know which gold stocks are a good investment?
Let’s take a look at the different ways to get in on gold.
Reasons Gold Stocks are a Good Investment
As mentioned, gold stocks are a good investment for a number of reasons. They add diversity to your portfolio, retain their value during economic uncertainty, offer a hedge against inflation, and even protect against deflation.
The current economic issues plaguing the world, like the China-US Trade War, recession fears, and Brexit, are reason enough to want to protect your investments. What’s more, dovish US Fed interest rate policies and continued physical gold purchases from central banks in Russia and China have also boosted gold prices.
Despite these favorable conditions, gold is under-represented in many investors’ portfolios.
“When you look at Canada, and you look at the index and the percentage of gold stocks and pension funds, they are extremely underweighted,” explained US Global Investors CEO Frank Holmes.
He sees supply restrictions being a major driver for gold price, with regulations hindering miners from developing new projects and providing additional supply to the hungry market.
In short, if you have been considering gold stocks for your portfolio, now is a perfect time to do so.
Small-Cap Gold Stocks to Watch
The gold market has long been dominated by large-cap companies that are out of reach for many investors due to their price tag. Luckily, there are several small-cap gold stocks that offer a lot of potential upside. In fact, small-cap gold miners have already offered investors a 27% return so far this year and are inherently less affected by changing conditions.
One gold stock that looks promising as of late is OceanaGold Corp. (TSX:OGC) (OTCPK:OCANF), a multinational gold producer with assets in New Zealand, the Philippines, and the US. Despite announcing lower output guidance after suspending production at its Didipio gold and copper mine in the Philippines last month, OceanaGold is a small-cap gold stock you should definitely consider adding to your watchlist.
While the output news caused the company’s stock to decline in late October, it has since bounced back thanks to positive drilling results at its WKP prospect in New Zealand last week. The results revealed significant high-grade results that will support continuous advancement at the project.
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In the last five days, OceanaGold stock has gone up by 11.31% to $3.15 CAD on the OTC, and analysts expect it will continue to rise. In fact, four research analysts have offered the company a consensus price target of $5.16 CAD and “buy” raying.
Another gold company with a lot of potential is Integra Resources (TSXV:ITR) (OTCQX:IRRZF), an exploration and development company with assets in Idaho. In September, Integra reported an “exceptional” preliminary economic assessment for its DeLamar gold-silver project, which revealed an after-tax net present value of $472 million CAD and an average annual after-tax free cash flow of $81 million CAD once the project starts producing.
Then there is Amex Exploration (TSXV:AMX) (OTCQX:AMXEF), a Canadian junior mining exploration company that has made a significant discovery at its 100%-owned high-grade Perron Gold Project in Quebec. Last week, Amex announced a fully-funded 100,000-meter drill program at Perron following the successful close of an oversubscribed financing that resulted in aggregate gross proceeds of $8 million CAD.
The company’s share price has skyrocketed this year from $0.21 CAD to $1.08 CAD, representing a 414.29% increase. However, it is still an affordable gold stock with a ton of potential.
Gold ETFs That are Shining
Another great way to get in on gold is by investing in a gold exchange-traded fund (ETF). Investing in ETFs is a great way to gain a piece of the action with much less risk, and the following have experienced some major gains this year.
Global gold-backed ETFs experienced record inflows in the third quarter, with $1.9 billion flowing in just last month, and this trend is expected to continue for the rest of the year at the very least.
If you like the idea of investing in gold bullion but don’t want to buy, insure, and store physical gold, the SPDR Gold Trust (NYSEARCA:GLD) is a great option. The fund tracks the spot price for gold bullion and is the second-largest exchange-traded fund in the world.
The SPDR Gold Trust is up 14.2% since the beginning of the year and is the largest gold ETF by asset value, with over $30 billion USD in assets.
Another gold ETF that has fared well this year is the iShares Gold Trust (NYSEARCA:IAU). Like the SPDR Gold Trust, this fund tracks the spot price of gold bullion and holds a staggering $12.2 billion in total assets. What sets this fund apart is that it offers a slightly lower expense ratio than the SPDR at 0.25%.
The iShares Gold Trust has increased by 14.3% since the beginning of 2019, with shares being bought left, right, and center by investment advisory groups and wealth management firms.
If you prefer to focus your gold investments on companies as opposed to bullion, another iShares ETF worth considering is the iShares S&P/TSX Global Gold Index Fund (TSX:XGD), which is Canada’s top gold equity ETF in terms of trade volume.
The fund’s top holdings include major industry players like Franco-Nevada Corp. (TSX:FNV) (NYSE:FNV), Newmont Goldcorp Corp. (TSX:NGT) (NYSE:NEM), and Barrick Gold Corp. (TSX:ABX) (NYSE:GOLD), and has returned nearly 30% so far this year.
Of course, these are just a few of the many gold ETFs available for your consideration. Other honorable mentions include the Horizons Gold ETF (TSX:HUG), the Horizons AlphaPro Enhanced Income Gold Producers ETF (TSX:HEP), and the BMO Junior Gold Index fund (TSX:ZJG), all of which have also experienced notable returns in 2019.
Takeaway
Whether you decide to purchase physical gold, invest in gold mining companies, or buy shares of a gold ETF, it’s evident that now is an ideal time to consider brightening up your portfolio with this safe-haven metal.
Are there any gold stocks on your radar that we should know about? Tell us about them in the comments!
Featured Image: Depositphotos © scanrail
