Gold-Related Shares: What to Know Before You Add Them to a Portfolio

Investing is no longer a rich man’s game. With the advent of new digital trading resources and platforms, a new generation of homegrown retail investors has been empowered to take control of their money, to grow it themselves and to build a real future-proof wealth portfolio in the process. Excellent as this is for the individual trader, it does not alter the truth of trading: that knowledge, truly, is king.

And this is the reason for which so many casual traders find their returns less inspiring than they may initially hope. In order to get the returns you seek from the markets, you need to understand them. And this is what we’ll be doing today, through the lens of gold. Gold is a stable asset, and a relatively low-risk long-term investment. But buying bullion isn’t the only way to engage with gold; there is a wider market here, with its own sets of risks and opportunities. How can you interpret gold-related shares and their possibilities for your own portfolio?

1) Miners vs. Metal

As established, gold as an asset in and of itself is considered a strategic asset – largely for its inflation-proofing of investments. Though a ‘stable asset’ by reputation, it is also a volatile one, price fluctuations of which can create or lose significant value for investors without due care. This risk/return profile is dramatically different to that of the publicly-trading companies that mine the gold – into which you can invest.

Mining companies have become a gold-standard, so to speak, of their own in recent months, as a popular choice of investment. This is with thanks to recent gains in the gold market, a relationship which illustrates the key differences at play. There are differing risks, with the profitability of investment in miners contingent on the profitability of gold sales – and also of the miner’s ability to continue performing with respect to gold extraction.

2) Research Workflow and Structured Learning Path

It should be clear by now, then, that research is a key component of any targeted investment. Investors could utilise ETFs (Exchange-Traded Funds) that bundle businesses and assets in a pre-diversified index. But even still, gold is a small part of a large market, and its related stocks beholden to a wide variety of variables and risks. Knowledge, again, is king.

It cannot be expected of you as a layperson to properly intuit a company’s health and prospects; for this reason, it may be wise to consider investment trading courses as a primer for understanding the underpinnings of businesses, markets and movements. With such knowledge, you’ll be better placed to read company filings, technical reports, production updates, and interpret them for the betterment of your investment decisions.

3) What Moves Equities vs. Bullion

Having internalised the various differences between the asset itself and the businesses concerned with it, let’s look at something foundational – the factors involved in their movement. Bullion being perceived as a ‘safe asset’ means it is often turned-to as a result of instabilities elsewhere.

When a nation-state appears to lose control of its currency, gold is a default to hedge against it; likewise, loss of confidence in central banks leads to increasing reliance on assets. Meanwhile, and even in opposition, equities see growth from confidence – confidence in output, confidence in future, confidence from buoyed investor hopes.