The so-called gold mining stock is the stock issued by the gold mining company. This kind of stock not only represents all pieces of gold but also has the characteristics of securities investment. Buying gold mining stocks is equivalent to buying underground gold. If you are a gold mining stockholder, the first thing you need to know is that you are not only investing in gold but also in the future of the mining company. Therefore, investment in gold mining stocks is more complicated than real gold trading.
Why is Gold Mining Stocks Investment Important?
Gold mining stocks play an important role in the portfolio of experienced investors, often as a substitute for investing in gold. Investors highly think of gold mining stocks. Investors often view gold reserves as disaster insurance and return on investment. Uncertainty and concerns about traditional stocks, coupled with a weak U.S. dollar, could push gold prices (and thus gold reserves). Because their pricing is not closely related to the broader market, these portfolios can be a valuable source of diversity. Investing in gold mining stocks is becoming increasingly popular because businessmen do not need to worry about the logistical issues of taking care of their physical gold. One of the downsides to buying mining stocks is that the investor gains from exposure to fluctuations in gold prices.
The Correlation with the Price of Gold
Gold mining stocks most often track fluctuations in the price of gold with some leverage. When the price of gold increases, the price of gold mining stocks can increase 1, 2, 3, or 4 times more in percentage terms. And vice versa. When the price of gold goes down, gold mining stocks can go down 1, 2, 3, or 4 times more.
What Does the Best Gold Mining Stocks Have in Common?
When looking for a gold mining stock that might suit your portfolio, there are several criteria to consider.
The Level of Indebtedness:
The debt-to-equity ratio is important for companies active in the commodities sector. This ratio assesses the solvency of the company. It is essential for a company operating gold mines to have sufficient solvency. Because of cycles, the price of gold is likely to fall sharply. A company must therefore be sufficiently solvent to continue to fulfill its responsibilities.
Reserves:
The best companies in the industry have significant reserves. These are not only gold reserves but also reserves in terms of cash flow. Indeed, the extraction of gold requires a significant mobilization of capital.
Production Cost:
There are two types of production costs in the sector. The “cash costs” are the production costs linked to the operation. They vary from day to day and include, among other things, labor costs, the production process, transport costs, energy, and consumption. The costs reported on average by the large groups amount to $600 per ounce produced. All-in sustaining costs also include development, administration, exploration, etc. In this context, the related costs can reach $1,000 per ounce.
Geographic distribution is also an important factor. Take, for example, the gold mines located in Russia or Venezuela. The political risk is higher there. In South Africa, the gold mines are underground. Therefore, operational costs are higher than the costs of mines located in America, Asia, or Australia.
Top 3 Gold Mining Stocks in 2022
So what are the stocks of gold miners that look most promising in 2022?
Barrick Gold (NYSE: GOLD)
Barrick Gold is a Canadian company that operates gold mines in Canada, the United States, Argentina, Africa, Papua New Guinea, and the Dominican Republic. It also operates copper mines in Saudi Arabia, Zambia, and Chile. Before the merger between Newmont Mining and Goldcorp, Barrick Gold was the largest gold mining company in the world.
The Toronto-based company’s strategy is to use “Tier 1” mines. These are operations producing more than 500,000 ounces of gold per year and have a life cycle of at least 10 years ahead of them. This strategy should enable Barrick Gold to maintain stable production in the years to come. The company, founded in 1983, expects to produce approximately five million troy ounces each year until 2030.
Equinox Gold Corp. (NYSE: E.Q.X.)
Equinox Gold is a Canadian mining company whose operations are divided between Canada, the U.S.A., Mexico, and Brazil. It is a young company, founded in 2007. But it is growing and aims to produce more than 1 million ounces of gold each year. With a price-to-earnings ratio of 5.82, Equinox Gold stock appears to be an ideal candidate for bargain hunters. In addition, with a price currently located at nearly $7, it is accessible to all wallets. If you consider investing in a promising start-up rather than an established company with less growth potential, you can take a close look at the Vancouver-based company.
Franco-Nevada (NYSE: F.N.V.)
Franco-Nevada is not a mining company. Its activity consists of financing mining companies by negotiating royalties and streams. Under its streams, the Canadian company can buy such a percentage of the deposit production concerned at an advantageous price. Under its royalties, it receives interest, representing a percentage of the value of the future products coming from the deposit concerned. By not participating in the actual operation, Franco-Nevada is not exposed to the risks associated with mining activity.
Who can buy Gold Mining Stocks?
Anyone can buy and sell gold shares directly on the stock exchanges. The only requirement for this is an online broker or a deposit at a bank. This is used to handle trading and custody of shares. Fees are charged for trading (buying and selling shares).
Gold mining stocks are more volatile than physical gold. This means that while the return opportunities are higher, the risks are higher. They are therefore only suitable for investors willing to take risks. Industry knowledge is helpful.
Where can gold mining stocks be traded?
Shares in the major mine operators are usually listed on the stock exchanges in their home countries but often have a secondary listing in London and are also traded on the Frankfurt Stock Exchange. The largest publicly traded gold miners include Barrick Gold (Canada) and Newmont Goldcorp. (Headquarters U.S.A., formerly Goldcorp, Canada & Newmont Mining, U.S.A.), Anglogold Ashanti (South Africa), and Gold Fields (South Africa).
Conclusion
Finally, it needs to be pointed out that investment in gold mining stocks is not an easy task and requires extensive knowledge unless you are a very keen investor yourself, have done this line of analysis, and have also participated in the trading activities of the stock market. You have a deep understanding of the direction of the gold price. Otherwise, it would help if you had a good broker to guide you. Of course, only a few brokers are familiar with this industry and can provide you with investment information. So you should contact brokers who specialize in gold mining stocks (if you are buying foreign stocks, choose a broker specializing in this business and find out the taxation of foreign stocks).