You’re Looking to Buy Gold, but How?
I was speaking to a friend of mine about the debt trap that the US Government finds itself in with its 130% Debt to GDP and requirement to continue spending for social security, pensions, healthcare, welfare and so much more. Inflate or die was essentially where we see things ending up in the long-term.
Then we asked ourselves all the little things we can do now in preparation for future turmoil and of course, gold was the first idea mentioned. However, my friend was less familiar about the different ways you can get exposure to gold so I wanted to post a brief and easy overview on it!
1) Gold Mining Stocks. These are broken down by Junior, Intermediate and Senior mining stocks based on their stage of activity (exploration/development/production), their market cap and the size of their properties. These are often a speculation play and are burning matches given that mines only have so much life to them. Your equity is literally going into the ground speculating that it’ll find a (new) discovery.
These can be explosive however if the underlying price of gold were to take a move. If we assume that a gold mine has an All-In-Sustaining-Cost (AISC) of 1400 USD per troy ounce and the price of gold is 1900 USD than they are earning 500 USD per ounce and let’s say they mined 100,000 ounces per year ($50M gross income). But let’s say the price of gold sparks to 2500 USD an ounce and AISC is now 1500–than they just made $100M on this price move on the same number of ounces.
For some reference: In 2022, Newmont’s total gold production was 5,170,000 million ounces
I like the thrill of Junior miners because of the prospect that they become acquired by a big fish or they have such findings that warrants them to develop a producing mine themselves (they are pico-caps at this point).
2) Gold Mining ETFs. These are investment products that charge a management fee to invest in a collection of gold mining companies, often dependent on the type of mines and may use leverage.
The problem here is that you may not witness the price movements in your favour and there is the illusion that one is “owning gold”. As of this year, the correlation between gold mining companies and gold bullion and the ETFs has been breaking. I think this a poor way to “own gold”.
3) Futures market. This enables investors to buy contracts of [potentially] deliverable gold. This is often referred to as “paper gold” because it is merely a contract. A lot of gold is traded here to avoid the hassle of moving and storing it. According to the CME Group site “it creates opportunities for portfolio diversification by presenting an alternative to gold bullion, coins, and mining stock investments. Gold also offers ongoing trading opportunities, as gold prices respond quickly to political and economic events”
I’ll admit I don’t have the type of $$ where I would be hedging with these contracts but its often used by large financial institutions. There is also E-mini gold futures which revolve around 50 contracts (as opposed to the standard 100). Again, the leverage here is tremendous on the underlying price, but if it goes against you (your portfolio) it can be disastrous.
4) Physical gold bullion or coins. This is where people purchase the actual gold to have in their possession and/or vault storage. The standard purity here is now .999 although American Eagle coins retain a ~90% gold purity.
If you’re interested in purchasing your own gold bar or coins and/or interested in Gold Storage, feel free to get in touch! I want some help!!
5) Newer methods. There are new methods such as “digital gold” (that I don’t entirely see the utility) as well as Goldbacks that utilize a new technology with atomic gold sprayed onto a bill. This technology is legal and recognized in four US states (Wyoming, Nevada, New Hampshire and Utah)
#StayOnTheBall
