Choosing a Gold Investment Method

2023-09-07
Summary:

When investing in gold, multiple factors need to be considered comprehensively, and it is recommended to develop a good entry and exit plan.

An excellent investment opportunity may be purchased at an inappropriate time, while a poor investment target may also profit under good risk management. Therefore, when receiving external information, it is important to think independently and establish a comprehensive entry and exit plan. My suggestion is to consider purchasing gold. Even if you are not planning to purchase, please remain vigilant as gold is about to embark on a relatively long-term upward trend.

Gold Investment Method

After global economic stagnation and the impact of large-scale banknote printing and trade wars by central banks, gold has been supported. In short, there is much good news, so I won't go into detail.


However, before we consider investing, let's discuss exit strategies to truly achieve paper profits. Firstly, we need to understand why gold has fallen, or rather, why it has fallen significantly. Firstly, a sudden collapse in the stock market may result in investors' account assets being forced to zero.


Secondly, the global economy is gradually recovering, but please note that the start of construction in European and American countries does not necessarily mean economic recovery. In fact, the trend toward corporate bankruptcy has just begun. When companies issue a large amount of bonds, similar to the amount borrowed by the government, they will have to take measures such as large-scale layoffs, selling company assets, and closing stores to maintain business operations. Although the Federal Reserve has delayed this fragile scene through printing money, when the economy reaches a low point and the economy begins to slowly recover, there will be slight inflation in the market, which will be more conducive to the growth of gold and real estate. This is also why I initially predicted that gold would experience a relatively long bull market, as economic recovery would take time.


Finally, the most crucial point is that no matter how in-depth and reasonable our investment analysis is, the market may still not buy into it. At this point, setting a stop-loss point or stop-gain point will become a good tool for survival. You can temporarily withdraw from market observation until the time is right, and then enter the market again.


Conduct in-depth research on the different ways of investing in gold among US stock brokers. The first is to directly purchase the stocks of gold mining companies. The stock prices of these companies are affected by fluctuations in gold prices. When gold prices rise, their stock prices usually also rise, and vice versa. At present, the world's largest gold mining company is Newmont Corporation, headquartered in the United States, with a stock code of NEM. The company's total assets are close to $50 billion, and its annual dividend payout is approximately 1.68%. The world's second-largest gold mining company is Barrick Gold, headquartered in Canada, with a stock code of GOLD and total assets of approximately $48 billion. The annual dividend payout is approximately 0.07%. The third largest gold mining company is Freeport McMoRan, headquartered in the United States, with a stock code of FCX and a market value of approximately $17 billion. The annual dividend payout is approximately 3.48%. However, it is worth noting that in addition to gold, they also engage in businesses such as silver, copper, and oil, so fluctuations in other commodity prices can also affect their stock prices. The fourth largest gold mining company is Newcrest Mining in Australia, with stock code NCM and total assets of approximately $12 billion, with an annual dividend payout of approximately 0.4%. Finally, the fifth largest company is Kinross Gold from Canada, with a stock code of KGC and total assets of approximately $9 billion, but no dividends have been paid.


We can see that the stock prices of these gold mining companies are currently at a seven-year high. Although some people may recommend companies with stock prices below $5 or even a few cents, I personally believe that these companies have higher risks. If you choose to hold them, it is important to control your position.


The second method is to purchase physical gold ETFs (exchange-traded funds). These ETFs will purchase actual gold bars, with fluctuations consistent with the price of physical gold. This is a relatively low-risk option, as there is no need to delve into company financials or other information. The largest gold ETF currently is SPDR Gold Trust, with the stock code GLD and an annual fee rate of approximately 0.40%. The other is iShares Gold Trust, with the stock code IAU and an annual fee rate of approximately 0.25%.


The third way is to track the ETFs of gold mining companies. These ETFs track all gold mining companies in the stock market, so in addition to fluctuations in gold prices, they are also affected by the overall health of the stock market. The two largest gold mining ETFs are VanEck Vectors Gold Miners ETF (GDX) and VanEck Vectors Junior Gold Miners ETF (GDXJ), with annual expense rates of 0.53% and 0.54%, respectively.


The fourth approach is leveraged ETFs, some with double or triple leverage. This means that if gold prices rise by 1%, their increase may reach 2% or 3%, and vice versa. This kind of leverage brings greater potential returns, but it also comes with higher risks, as the decline will also be amplified. Additionally, such ETFs typically involve futures contracts, resulting in higher fees. It should be noted that they are more suitable for short-term investors and experienced investors.


Finally, the fifth method is to empty the ETF of gold, but this requires more professional knowledge, so we will not explain it in detail here.

To summarize, in addition to the high-risk and highly leveraged methods of futures and short selling, the main ways to invest in gold include purchasing stocks of gold mining companies, purchasing ETFs of physical gold, tracking ETFs of gold mining companies, and using leveraged ETFs. Each approach has its advantages and risks, so when choosing the one that suits you, please be careful and consider it carefully.


Finally, I would like to remind everyone that physical gold bars or gold passbooks can be purchased directly, but safety and other factors need to be considered. When trading gold ETFs at securities firms, it is simple and fast, and usually there are no additional trading fees.


Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

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