Investors trading stocks in the stock market today will keep looking out for stock picks they feel will make them a good return. They watch the stock market and analyze all the data from news on the economy to political situations. If things are positive, then they will look for those companies posting the best profits. However, this is during the good times and bull market. When the situation reverses and the economy is weak, the markets start to decline, causing investors to sell out of the market and place their money in gold. Gold has traditionally been seen as a safe haven during times of economic strife. Gold stocks are another way to invest in gold but without actually physically buying gold.
Investing in gold stocks could see you investing in publicly traded gold mining companies. Buying shares in a gold mining company allows you to take advantage of the companies increased profit, due to the higher demand for gold. Gold prices are driven by supply and demand, and when economies are uncertain, the increased buying of gold drives the price up. Any gold mining company will benefit from the increased demand and price of gold. This may see the gold mining company’s earnings increase, which would push its share price up on the market, thus making gold stocks very lucrative.
If you are stock picking mining companies, you need to look at the fundamentals of the company to ensure that its share price will rise with the increase in the price of gold. Fundamental and technical analysis of the stock pick will provide you with a clear picture. If the company has large outstanding debts, and the earnings even with the higher gold prices leaves it in the negative on the long term, then you are better off not buying it.
Investing in gold stocks in the form of gold exchange traded funds is a better than buying individual stocks. ETFs will have a collection of many gold mining companies in their fund, and by investing in them, you will greatly reduce your exposure to risk. This is because the fund is not reliant on the performance of a handful of stocks. This means that if a few mining companies decline in price, the rest of the other mining companies in the fund will absorb the losses and you will still see a profit from the fund. Before you enter the market, research and find out if the economic outlook has improved as this may see the price of gold decline.