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Getting Gold Exposure: Bullion vs. ETFs vs. Mining Stocks

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Got Gold - How to Gain Gold Exposure

How to Get Gold Exposure in Your Portfolio, Explained

A lot of talking heads say, “Buy gold!” but don’t really explain exactly how to buy gold or get exposure to the precious metal.

There are options when it comes to getting exposure to the precious metal, and each one has upsides and downsides worth being mindful of.

Whether you’re interested in holding physical gold in a safe storage space or simply want to add some gold exposure to your investment portfolio, this infographic shows you the differences between gold bullion, gold ETFs, and gold mining stocks.

What to Consider Before Investing in Gold

There are some key considerations to be aware of before you begin investing.

While below are some of the main factors to keep in mind as you pick a gold investment method, be sure to research each method and its properties thoroughly before investing.

Downside and Volatility Risk

The first consideration for any kind of investment should always be how much drawdown you’re willing to stomach before pulling your money out.

When the COVID-19 pandemic resulted in a price drop across the board for just about every kind of asset, the price of physical gold and gold-backed ETFs held up very differently compared to individual gold mining stocks and gold mining indices.

Case Study: Gold vs. Mining Stocks Drawdown and Returns

AssetDrawdown from March high to March lowReturns from March low to 2020 high
Spot gold and gold ETFs-14.8%42.9%
Barrick Gold Corporation-42.1%146.8%
Gold Miners ETF (GDX)-46.0%182.9%
Junior Gold Miners ETF (GDXJ)-52.7%237.9%

While physical gold and bullion ETFs (which track gold’s price movements) tend to be more resilient during market downturns, they also offer less upside compared to gold mining stocks and indices during bull markets.

Junior miners or exploration companies offer the greatest volatility and potential upside, but carry the highest risk. When investing in any mining company, concrete results from their planning and drilling along with efficient execution in setting up projects and production will best determine the stock’s valuation.

Active vs. Passive Management

Some investors like to actively manage their investments while others prefer a more passive “set and forget” approach.

Each approach has its merits, however, gold ETFs and mining stocks are better suited for more active investors, while shipping and transport costs for physical gold can add up if buying and selling frequently.

Determine whether you’re going to be actively managing your gold exposure or if you’re going to be letting your investment sit for a while. This way you can determine the best method to reduce fees and commissions.

Three Types of Gold Exposure: Pros and Cons

Now, let’s dive into the three main types of gold exposure: gold bullion, gold ETFs, and gold mining stocks and ETFs.

1. Gold Bullion

If you’re looking to purchase physical gold in the form of bullion, there are a lot of considerations to keep in mind. These range from the various fees you’ll pay to where and how you’ll be storing and protecting your gold.

Many bullion dealers offer storage as a service, reducing shipping costs and the extra work of finding somewhere secure to keep your gold.

Fixed Position Sizes and Liquidity

When buying gold bullion it’s important to remember that you are buying coins, bars, or ingots of gold. This means that if you’re looking to sell off half of your gold position but only have a single 1oz gold coin, you won’t be able to!

Due to this, gold bullion might not be the best option for those interested in actively managing their exposure or for those with smaller amounts of capital.

Buying and Selling Commissions

Just about every gold dealer will charge commissions on any buying or selling, which are typically <1% of the value of the order with lower commissions for larger volumes. Some dealers include their commissions as a premium directly onto their prices.

Storage Costs

Storing gold bullion with gold dealers or storage services will incur yearly storage costs that are typically a percentage of your holdings.

While some storage providers have low percentages, they will often have minimum monthly or yearly storage fees. For investors purchasing small amounts of gold it’s important to not let these fees eat up too much of your investment.

  • Fees range from 0.12% to 1.5% annually, with some storage services providing fee discounts for larger volumes of gold
  • While purchases of investment-grade bullion are tax-exempt, taxes are charged on storage fees.

Reputable gold storage services offer full insurance coverage on your bullion stored with them and will keep your gold physically separate from the company’s gold and off the company balance sheet. Some will even provide customers extra peace of mind with pictures of their bullion, typically for an additional cost.

Withdrawal Commissions and Shipping

If you’ve been storing your gold with a dealer but want it closer to home, you’ll have to pay withdrawal commissions along with shipping costs. Some dealers charge a flat rate per bullion or withdrawal, while others charge a percentage of your holdings.

If you’re having bullion sent to you without storing it at the dealer, you’ll just pay for shipping and insurance. These are typically flat fees along with a percentage of the dollar value of your order (ranging from 0.4% to 7.5% depending on the amount and types of bullion).

Before holding your gold privately it’s important to know:

  • Privately held gold is sometimes not fully trusted when sold back to bullion markets, and can lose some of its value.
  • Privately held gold is usually less physically safe compared to gold in a vault, and is almost always more expensive to insure.

2. Gold ETFs

Exchange-traded funds (ETFs) are a more approachable option to get exposure to gold for those with some experience purchasing shares using online brokers and exchanges.

Gold ETFs enable investors to have exposure to gold’s price while avoiding storage, shipping, and insurance fees. There are also fewer liquidity bottlenecks and tighter spreads with gold ETFs compared to gold bullion.

When buying gold ETFs it is important to remember that in most cases, you never actually own any physical gold. Even though these funds are backed by physical gold, you cannot redeem your shares in exchange for gold.

  • Buying and Selling Commissions: When buying or selling shares of an ETF you’ll likely pay commissions. These commissions are decided by the brokerages and are typically below $10 per buy and sell order, with some brokerages offering commission-free trading to cut costs for active traders.
  • Expense Ratios: Similar to storage fees on gold bullion kept in a vault, gold ETFs charge a yearly expense ratio to cover the costs of management and operations. Expense ratios are typically quite low, ranging from 0.17% to 0.75%, and are taken directly from your investment.

3. Gold Mining Stocks and ETFs

Gold mining stocks and mining ETFs are the most distant from physical gold, and offer exposure to the operating profits, losses, or even discoveries of mining or exploration companies.

Mining ETFs (like the GDX and GDXJ) are a basket of mining stocks for purchase as a single share, helping spread out the operational and concentration risk of investing in a single mining company. Mining ETFs are typically less volatile than individual mining stocks, but can still offer increased returns compared to gold bullion and gold ETFs.

Similar to gold ETFs, mining stocks and mining ETFs have:

  • Buying and selling commissions decided by your online brokerage
  • Annual expense ratios for mining ETFs
  • Potential for dividends depending on the individual mining stock

If buying individual gold stocks, it is important to know that the prospects of any one company can differ incredibly. For this reason, it’s crucial to invest in quality companies, and to have an understanding at factors at play such as management competence, jurisdiction, or project quality and economics.

Find a Gold Investment Method that Works Best for You

Be aware that the methods discussed in this article aren’t the only ways to invest in gold.

If you’re willing to learn a bit more about contract structures and more complex fee structures, look into gold futures contracts. For those with some options understanding and experience, buying call options is another way to get gold exposure. Rare coins and jewelry are another investment method that also carries some artistic value.

Whatever you pick, make sure to thoroughly research your investment, its transaction and price mechanisms, and the commissions and fees you’ll be paying.

All of the investment methods discussed have differing tax implications depending on where you reside, which could influence your decision on how you invest in gold.

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Electrification

Visualizing Peru’s Silver Mining Strength

With a rich history of mining, Peru plays a vital role in supplying the world with silver for clean energy technologies and electrification.

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Peru's Silver Mining Strength

Visualizing Peru’s Silver Mining Strength

Peru’s silver mining industry is critical as the world progresses towards a clean energy transition. Silver’s use in EVs, solar energy, and mobile technologies will require ready supplies to meet demand.

Peru will be centre stage as the world’s second-largest producer of the precious metal.

This graphic sponsored by Silver X showcases Peru’s silver mining strength on the global scale, putting in perspective the country’s prolific production.

Global Silver Production by Country

Mexico, Peru, and China dominate global silver production, with these countries producing more than double the silver of any other country outside of the top three.

In terms of regional production, Central and South America provide the backbone for the world’s silver industry. With five nations in the top 10 producers, these regions delivered ~50% of the world’s 2020 silver production.

Country2020 Silver Production (in million ounces)Share of Global Silver Production
Mexico178.122.7%
Peru109.714.0%
China108.613.8%
Chile47.46.0%
Australia43.85.6%
Russia42.55.4%
Poland39.45.0%
United States31.74.0%
Bolivia29.93.8%
Argentina22.92.9%
World Total784.4100%

Along with being the top silver mining regions in the world, Central and South America silver production expects to have the strongest rebound in 2021.

While global silver production could increase by 8.2%, Central and South America’s production could rise by 12.1%.

Peru can feed this growth, with the country’s exploration investment forecast for this year expected to reach up to $300 million with over 60 projects currently in various stages of development.

The South American Powerhouse: Peru’s Silver Mining Strength

Despite its current silver production, there remains more to mine and explore. In fact, Peru holds the majority of the world’s silver reserves with 18.2%, making it the global focal point for silver exploration and future production.

CountrySilver Reserves (in tons)Share of World Silver
Peru91,00018.2%
China41,0008.2%
Mexico37,0007.4%
Chile26,0005.2%
Australia25,0005.0%
Other countries280,00056%
World total500,000100%

While 2020 and 2021 saw slowdowns in mineral production, Peru’s metallic mining subsector increased by 5.1% in August 2021 compared to the same month last year. The country’s National Institute of Statistics and Informatics also highlighted a double-digit rise in silver production of 22.7% compared to August of last year.

Satiating the World’s Silver Demand

As silver demand is forecasted to increase by 15% just in 2021, silver supply constraints are a clear roadblock for clean energy technologies and electric vehicle production. With Peru’s annual silver production forecasted to grow by more than 27% by 2024, the country is looking to solve the world’s growing silver supply crunch.

The nation’s strong credit ratings and well-established mining sector offers investors a unique opportunity to tap into the growth of Peru and its silver industry, while powering renewable energy and electric vehicle production.

As a Peru-based mineral development and exploration company, Silver X Mining is working to produce and uncover the silver deposits that will provide the world with the metal it needs for cleaner technologies.

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Real Assets

The Next Frontier: Mineral Exploration in Saskatchewan

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Saskatchewan Mineral Exploration

The Next Frontier: Mineral Exploration in Saskatchewan

Lying in the heart of Canada is the next great mineral exploration frontier, Saskatchewan. This humble province lies at the center of one of the greatest mining countries in the world, but despite Canada’s long history with mining, Saskatchewan is still open for discovery.

This infographic from our sponsor SKRR Exploration shows where the next mineral frontier for discovery lies in Saskatchewan.

The Road to Resources: Opening for Business

Saskatchewan covers 588,239 square kilometers, roughly the size of Iran or Mongolia, with a population density of only 1.8 persons per square kilometer. This central province sits on the edge of a vast frontier that is rich with mineral resources that could power and feed the world.

In order to encourage investment, Saskatchewan has several incentive programs for the mining industry.

  • The Targeted Mineral Exploration Incentive: 25% rebate on eligible drilling costs in regions of high potential for base metals, precious metals and diamonds.
  • The Saskatchewan Mineral Exploration Tax Credit: A non-refundable 10% tax credit to Saskatchewan taxpayers who invest in eligible flow-through shares issued by mining or exploration companies.
  • A 10-year royalty holiday for new gold and base metal mines.
  • A 5-year incorporation tax rebate for mineral processing.

While the province is encouraging mineral exploration, there are already proven success stories that are just scraping the surface of the opportunities available.

Resources Ready to Go

In 2020, Saskatchewan sold C$7.4 billion worth of metals and minerals, the fourth highest amount in Canada. Saskatchewan’s mining sector provides business opportunities and jobs for over 12,400 individuals across the province, and contributes an additional 25,000 indirect jobs.

  • Potash: The province has the largest potash industry in the world, accounting for about 1/3 of annual global production and hosting nearly half of the world’s known reserves.
  • Uranium: The world’s richest deposits of uranium lie in Saskatchewan, giving the province the ability to produce more uranium with less land surface disturbance than almost anywhere on Earth.
  • Diamonds: In 2004, Shore Gold discovered diamonds near Fort à La Corne in central Saskatchewan. There is a plan to bring the 66-million carat Star-Orion South project into production.
  • Base Metals: The Flin Flon mining camp, on the Manitoba-Saskatchewan border, is a large base metal producer region and is estimated to have the highest contained value of ore per square kilometer in Canada for VMS deposits.
  • Gold: The province holds two multi-million ounce discoveries to date, the Seabee and MacLellan gold mines in the Trans-Hudson geological formation.

There is more to discovery. Exploration expenditures in 2019 were $264 million, and companies planned to spend $242 million in 2020.

SKRR Exploration: Opening a Frontier

SKRR Exploration is leading mineral exploration into Canada’s final frontier and has secured prime mineral properties to take advantage of the wave of demand for metals. SKRR has six gold and one base metal exploration projects in the heart of one of the most prospective geological belts in North America.

At the helm of SKRR exploration are two leaders who know the geology of Saskatchewan well and have a proven history of discovery, Ron Neolitzky and Ross McElroy. Neolitzky was inducted into the Canadian Mining Hall of Fame for his development of two successful precious metals mines. McElroy was part of the exploration team that discovered Cameco’s McArthur uranium deposit.

SKRR Exploration is bringing together the right elements of Saskatchewan to make the next great discovery.

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