In highly volatile markets, investors will invest in assets or commodities that they feel will hold value. For example, they will typically flee risky asset classes and opt for investments such as gold.
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Gold is relatively rare and it is respected across borders as a potential hedge against inflation. Currencies may come and go, but the theory is that the value of gold will live on.
Also, it's important to note that gold has proved itself over time. Historic charts show that gold spiked from about $150 dollars an ounce in the mid-1970s to more than $930 an ounce in as of June 26, 2008. (Think the value of gold is unshakable? Read The Gold Standard Revisited to learn of its rise and fall.)
So how can the individual investor go about investing in gold?
Jewelry of course is one option, but there are downsides to consider. You will have the ability to actually wear your investment or hold gold coins, but there is the issue of finding a safe place to store such merchandise. Finding a buyer for a particular piece may also be difficult. Plus there is sometimes a very big markup on certain pieces.
There is an alternative for investors to gain exposure to gold: the stock market. Below is a list of five gold plays easily accessible to the individual investor.
|Kinross Gold Corporation (NYSE:KGC)||$15B|
|SPDR Gold Trust (ETF) (NYSE:GLD)||$33B|
|Barrick Gold (NYSE:ABX)||$31B|
|Goldcorp (NYSE:GG, TSE:G)||$26B|
|Jaguar Mining inc (NYSE:JAG)||$609M|
|Data as of market close June 26, 2009|
To gain exposure to gold, SPDR Gold Trust ETF will track the price of gold. During political instability this becomes a great hedge against inflation and a general market decline. If you are looking for a more direct play on gold and are willing to take on more risk, then there are a couple of mining stocks to look at.
Jaguar Mining reported first-quarter earnings for the period ending March 31, 2009 with net income of seven cents per share, up from one cent per share in the comparable period one year ago. Average price per ounce of gold was $928 compared to $924 per ounce one year ago. Analysts are currently expecting earnings per share of 11 cents for the quarter ending September of 2009 according to Thomson Financial Networks.
While gold has fared well in the past, there is no guarantee that it will do so in the future. The price of gold can fluctuate widely. In 1980 the price of gold had risen to about $850 an ounce, a huge increase given that just a couple of years prior it was trading under $200. But, not too long after that spike, gold lost a bit of its luster. Long story short, the price floundered until 2005 when interest started to pick up again.
Investors who purchased at or near the top of the market in the 1980 time frame had to wait about 25 years to recoup their investments. (To learn how to combine technicals and fundamentals to confirm trends in this commodity, read A Holistic Approach To Trading Gold.)
The Bottom Line
Over time, many investors have flocked to gold particularly during times of economic crisis. Its widespread international acceptance and recognition will cause this trend to continue. A little exposure to gold may help to mitigate the overall risk of your portfolio. (For further reading, check out Does It Still Pay To Invest In Gold? and Getting Into The Gold Market.)