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What Are the Best Tips for Investing in Gold Stocks?

K. Kinsella
K. Kinsella

Commodities, including gold, are traded on stock markets around the world; due to the logistics involved in storing gold bullion, many investors buy stocks in gold companies or funds that own gold rather than buying the metal directly. Well-informed investors often begin buying gold stocks when others start to sell corporate stocks because commodities prices often rise when corporate stocks drop in value. Other investors consider trade volumes, historic price fluctuations and the track record of fund management teams before investing in gold stocks.

In many societies, gold has been regarded as a valuable commodity for thousands of years and many investors regard precious metals as safe haven investment options during periods of economic decline. Although stocks, including those in gold funds can drop in value in conjunction with price drops among other kinds of stocks, the prices of gold stocks tend to rise if gold bullion increases in value. A widespread market sell-off is often the first sign of a recession and investors who have sold shares in corporations often reinvest their money in gold stocks. Experienced investors attempt to buy gold stocks when the downturn begins before large numbers of investors have the opportunity to drive the price up by causing an imbalance between supply and demand.

Stack of gold bars.
Stack of gold bars.

Rather than investing in gold stocks as soon as a recession begins, many investors review the level of market activity before deciding whether or not to buy the stocks. Stockbrokers keep track of the number of trades that occur on a single day and if the volume of gold related trading activity exceeds normal levels then it could be indicative of the fact that large numbers of investors have already bought gold stock. When this occurs, a price bubble often forms which means that the value of the stock rises too quickly before eventually dropping. If activity in gold stock exceeds normal levels then many experienced investors wait to purchase gold stocks until the price has peaked and fallen again.

Aside from current market indicators, many investors look at records pertaining to past gold trading activity. Price changes involving commodities are sometimes cyclical and some people use historic charts when trying to determine the best moment to start investing in gold stocks. Other investors compare the performance of different investment companies and buy stocks in the mutual funds or exchange traded funds (ETF) that have the best track record over a multi-year period of time as opposed to the last few months.

Investing in gold stocks can be risky and many investors lose more than they earn. Therefore, many investment advisers recommend that people should only invest money in gold that they are not relying on to cover day-to-day expenses. Other investors mitigate the risk levels by investing a small portion of their funds in gold stocks and investing the rest of their money in a variety of other securities.

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    • Stack of gold bars.
      Stack of gold bars.