Reasons to Own Gold Equities Now.
March 8, 2021 (Investorideas.com Newswire) By now, you already know how historically significant gold has been. As a commodity that investors have used as a safe haven in economically uncertain times, gold will always be valuable.
But what many investors may not realize or perhaps overlook is that gold stocks may be a very good investment in 2021.
Here is a breakdown of mining stocks, gold, and reasons why you should own gold equities now.
What To Know About Mining Stocks
Thinking about expanding your portfolio into the mining sector? You should know a few key things about mining stocks before diving in. Here is a breakdown of what you need to know about mining stocks.
The mining sector regularly produces industrial-use metals and other raw materials, making it popular among investors. Mining stocks are split into two categories: majors and minors.
A major mining stock refers to a well-established company with near-global operations. Majors are heavily capitalized, have a slow but reliable cash flow, and tend to be less volatile.
Juniors, on the other hand, are about the exact opposite of majors. Juniors tend to be new companies, without established history or capital, making them more volatile. This type of mining stock comes with lots of risks.
Although majors are more reliable, it is a slow burn. Juniors on the other hand can either fail, get gobbled up by a major, or produce a return that outweighs what a major could produce in a year. But the most likely outcome is a failure.
What To Know About Gold Stocks
Gold stocks are very similar to your other stock investments in that they are a liquid investment purchasable on a stock exchange. These stocks represent a share in gold mining companies.
There are several reasons why investing in gold is a good idea in general. The first reason is that so many investors fall back on gold when times are tough.
In other words, when currencies begin to lose their value, oftentimes you will see investors clench onto gold because its value usually remains high.
For this reason, gold presents an opportunity to diversify your portfolio since its price is related to events that cause paper investments, like bonds or stocks, to lose their value.
The price of gold may be volatile in the short term, but the tradeoff is the value it retains in the long term.
Why Gold Stocks Outperform Gold in Bull Markets
For some time now, gold stocks have been outperforming the price of gold. One explanation is that gold miners have made leverage play against gold's rising price.
In other words, as the price of gold began rising, mining companies utilized their operating leverage to increasing their profits while keeping their costs on a slower rise.
Break Down Gold Mining: Costs & Profits
So how exactly do gold miners leverage the rising price of gold? As gold miners produce the precious metal, it is sold quickly to avoid the risk of gold's value depreciating
Once the price of gold rises, gold miners start to see greater profits immediately as they sell it on the market. Although the cost of mining gold rises as well, it does not rise at the same rate, giving miners an advantage.
Since the returns on the gold miners sell are greater than the cost of operating the mine, the resulting in larger profits, increased operations, and free cash flow.
Why Gold Mining Stocks Are Still Undervalued
Despite gold mining stocks churning out great returns over the past several years, there are still signs that they are being undervalued in comparison to gold bullion and other equities.
It all goes back to the fact that so many investors have historically turned to gold, and gold bullion, in times of economic downturn. As a safe haven, gold bullion has helped investors ride out tough times and come out on top.
Since many investors trust gold bullion, they decidedly ignore gold mining stocks, despite a pattern of outperforming gold bullion.
Perhaps it is due to the risks that gold stocks and mining companies hold, or maybe it due to gold's historical significance.
Reasons To Buy Gold Equities in 2021
If gold stocks continue to outperform gold itself, shouldn't you begin investing in them? Here are several reasons to buy gold equities in 2021.
Gold Equities are on the Move
As the price of gold continues to rise, the recent pattern of mining stocks shows that it rises even higher.
While many investors are sure to jump on the bandwagon for gold bullion, you can take a different route with gold equities.
Gold Stocks Are Undervalued
Physical gold ownership, such as gold bullion, has been a historically reliable investment especially in times of economic down-turn. This focus and attention on gold ownership have resulted in many people overlooking gold stocks.
Yet, gold stocks have routinely outperformed gold, which means they are still being undervalued by investors.
Since gold stocks are consistently undervalued in comparison to physical gold and other equities, they have a history of being inexpensive.
This gives a savvy investor the opportunity to find bargain gold stocks to buy up and profit from.
Supplies Are Limited
According to the USGS, about 244,000 metric tons of gold have been discovered to date. Although that is a lot of gold, there is believed to be much more lying beneath the Earth.
Despite the known amount of gold already mined, it is incredibly difficult to mine for, resulting in limited supplies. And when a commodity is limited, its value rises.
Earnings Momentum Has Turned Positive
The earnings momentum for gold stocks has turned positive, meaning that shares in mining companies have grown over the past year.
This is due to the companies being able to sell their mined gold for more while keeping the cost to mind gold, down.
Benefits of Being a Dear Retail Investor
If you want to start investing in gold or other mining stocks, it would be helpful to know more information about it. That is why Dear Retail exits. We help educate investors, advocate for them, and help them succeed in small-cap retail investment.
Join other Dear Retail investors as you explore the hidden corner that is the small-cap market
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