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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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Real Assets

Visualizing the Genealogy of Exploration Success

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Mineral Exploration Success

Visualizing the Genealogy of Exploration Success

In the last decade, 63% of all mineral discoveries in the Western world were made by junior explorers. These small companies are the vision of a dedicated few.

It is the people that make a great company, and it is great explorers that make great discoveries. This infographic sponsored by SKRR Exploration shows the incredible experience and knowledge of two leaders in mineral exploration brought together in one new venture.

Two Paths to Exploration Success

According to the common adage, overnight success stories take a long time. Ron Neolitzky and Ross McElroy have traveled two different paths but along their route, they have uncovered vast amounts of mineral wealth in Canada.

Ronald Netolitzky Ross McElroy
  • 1964-67: Graduated from the University of Alberta with a B.Sc and M.Sc. in Geology.
  • 1985: Became President of Delaware Resources and acquired the Snip property.
  • 1986: Struck a gold discovery at the Snip property, which produced 1Moz of gold over its lifetime.
  • 1988: Invested in Consolidated Stikine Resources and drill-tested Eskay Creek, which would go on to produce 3.3Moz of gold and 160Moz of silver over its lifetime.
  • 1990: Sold Eskay Creek stake to International Corona for $67/share as part of an acquisition.
  • 1990: Received the Bill Dennis Prospector of the Year Award.
  • 1993: Purchased 100% of the Brewery Creek property as president of Loki Gold.
  • 1996: Transformed Brewery Creek into a heap-leach operation.
  • 1996: Merged Loki Gold with Baja Gold and Viceroy Gold to create an entity with an annual production of 200Koz of gold.
  • 1996: Received AME’s E.A. Scholz Award for discovery and development achievements.
  • 2003: Acquired the Galore Creek property for Spectrum Gold, later merged with NovaGold Resources and partially sold to Teck Resources for $275M.
  • 2007: Oversaw Yamana Gold’s $577 million acquisition of Viceroy Resources as chairman.
  • 2010: Oversaw Osisko Mining’s $372 million acquisition of Brett Resources as chairman.
  • 2015: Inducted into the Canadian Mining Hall of Fame.
  • 1987: Graduated from the University of Alberta with B.Sc. in Geology.
  • 1987: Joined uranium giant Cameco and worked on the McArthur River discovery in Saksatchewan’s Athabasca Basin, which is now the world’s largest uranium mine.
  • 1989: Worked with French nuclear Company Cogema (now Orano) on the Shea Creek uranium discovery in Saskatchewan, Canada.
  • 1990-99: Managed the Hope Bay Gold Project with BHP Minerals, discovering three high-grade gold deposits.
  • 2007: Joined Fission Energy as VP of Exploration before rising to the rank of COO.
  • 2009: Led the technical team that discovered the high-grade J Zone uranium deposit at Waterbury Lake and sold to Denison Mines.
  • 2012: Used airborne radiometrics and radon in-lake survey technology to discover the Triple R uranium deposit on the Patterson Lake Property, with an indicated resource of 102M lbs of U3O8.
  • 2013: Received the Mining Person of the Year Award from the Northern Miner.
  • 2014: Received the Bill Dennis Award for a Canadian discovery.

This combined experience is coming to bear in one company to uncover Canada’s next mineral frontier.

Bringing Experience Together: SKRR Exploration

SKRR brings together the experience of two great explorers to uncover the next mineral frontier, Saskatchewan. This junior explorer is working on the next great discovery with 6 projects in the Trans-Hudson geological corridor

  • Father Lake Nickel Project: Copper, Nickel
  • Ithingo Project: Gold
  • Irving Project: Gold
  • Cathro Project: Gold
  • Leland Project: Gold
  • Olson Project: Gold
  • Manson Bay: Gold

With a proven location and legacy of exploration success, SKRR is ready to unlock the next mineral frontier in Saskatchewan and continue the tradition of a dedicated few uncovering the next great discovery.

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Real Assets

The World’s Top 10 Gold Mining Companies

Together, the world’s top 10 gold mining companies account for roughly 22% of the share of the total gold market.

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Top 10 Gold Mining Companies

The World’s Top 10 Gold Mining Companies

Unlike paper currency or many other types of assets, gold has maintained its value throughout the ages.

First used by cultures in modern-day Eastern Europe in 4,000 BC to make decorative objects, the metal today represents a global business with operations on every continent, except Antarctica.

The industry is dominated by a select group of majors.

Together, the world’s top 10 gold miners produced 27.48 million ounces (Moz) in 2020, worth approximately $48 billion, according to data from Mining Intelligence.

North America Leading

At a country level, China is the largest producer in the world accounting for around 11% of total global production.

However, no Chinese company appears among the top miners.

RankCompanyHeadquartersCountry2020 Production (Moz)
1Newmont DenverUSA 🇺🇸5.88
2Barrick GoldTorontoCanada 🇨🇦4.84
3PolyusMoscowRussia 🇷🇺2.87
4AngloGold AshantiJohannesburgSouth Africa 🇿🇦2.81
5Kinross GoldTorontoCanada 🇨🇦2.38
6Gold FieldsJohannesburgSouth Africa 🇿🇦2.13
7Newcrest MiningMelbourneAustralia 🇦🇺2.06
8Agnico EagleTorontoCanada 🇨🇦1.73
9Polymetal InternationalSt. PetersburgRussia 🇷🇺1.40
10Harmony GoldJohannesburgSouth Africa 🇿🇦1.38

At the top of the gold mining companies list, Colorado-based Newmont has ownership of mines in Nevada, Colorado, Ontario, Quebec, Mexico, the Dominican Republic, Australia, Ghana, Argentina, Peru, and Suriname.

As the only American company on the list, Newmont produces 21% of the yellow metal poured by the top companies.

Canada, which is known for its mining industry, has three companies on the list; Barrick Gold, Kinross Gold, and Agnico Eagle, producing 32% combined.

Russia, which is expected to become the world’s top producer by 2029, has two companies ranked. Together, Polyus and Polymetal represent 15% of the top miners’ production.

The top 10 players account for ~22% of the total market share, which is anticipated to grow due to increased merger and acquisition activities.

Wealth and Luxury

Over six and a half thousand years after its discovery, more than 90% of the gold mined annually is destined for jewelry, bullion, and coins.

  • Jewelry: 36.83%,
  • Investment: 46.64%,
  • Central banks: 8.58%,
  • Technology: 7.95%

The metal is also used in dentistry, as it is the best material for fillings and crowns since it is easy to insert, and is non-reactive with the human body.

Golden Future

Global production fell by 1% in 2020, the first decline in a decade, according to the World Gold Council.

Some analysts argue the world has reached “peak gold” – which means that the maximum rate of extraction has passed and the production of the metal will continue to fall until, eventually, mining for it shall cease entirely.

Demand, however, shows no sign of slowing down as the golden metal remains firmly synonymous with security, stability, and longevity.

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