As the financial crisis continues, investors are searching for safety anywhere they can get it. Real estate is obviously out. Equities are getting hit. The currency markets are roiling.
Throughout history, gold has acted as a safe haven in times of economic stress.
Should you be investing in it?
Investors around the world are flocking to the yellow metal. The South African Rand Refinery which manufactures the popular Krugerrand coin, is now operating its plant 7 days a week to keep up with demand for its gold coins. Similarly, the Austrian mint has added weekend production.
In Perth, Australia, the Perth Mint has hired more staff and has doubled its coin production. About 80% of its business is done outside of Australia in North America, Europe and Asia.
The U.S. Mint recently announced it was temporarily suspending all sales of the 24-karat American Buffalo gold coins due to increasing demand as the Mint's inventories were depleted.
A few weeks ago, it also suspended sales of the American Eagle coins, also due to strong demand. American Eagle sales resumed, but only to a select group of designated dealers. The Mint will also resume sales of the Buffalo coins shortly.
But buying coins is different from buying shares in gold mining companies. The price of gold does not always correlate with earnings of mining companies. Stocks of gold mining producers sometimes decline even when gold prices are soaring.
Should You Buy Gold Mining Stocks Now?
The price of gold has been volatile, with big swings in the last two weeks. Gold stocks have also seen big moves up and down. Neither is for the faint of heart.
There are two categories of gold mining stocks: the junior miners and the large miners. The large miners have a longer history of earnings and are usually believed to be less volatile. The junior miners are riskier but that risk can pay off big if gold prices soar.
I did a screen on Research Wizard to find gold mining stocks that were at least a Zacks Rank #3 and had earnings growth.
Barrick Gold (ABX) is one of the world's largest gold producers with 27 mines on five continents. ABX, headquartered in Toronto, is a Zacks #3 Rank stock. It has surprised on estimates 2 out of 4 quarters by an average of 1.45%. Analysts expect earnings growth of 10%.
Newmont Mining (NEM) is also one of the world's largest gold producers with mines on 5 continents. Newmont was founded in 1921 and is headquartered in Denver. The company is a Zacks #3 Rank stock. Analysts expect earnings growth of 14.3%.
Drdgold Limited (DROOY) is a South African medium-sized gold producer with mines in South Africa. Drdgold is a Zacks #1 Rank (Strong Buy) stock. Analysts expect earnings growth of 42.15%.
Gold Stocks Not the Only Bet
Individual gold stocks may be too risky for your investing style. You can invest directly into gold itself through an exchange traded fund, SPDR Gold Shares (GLD), which was launched in 2004. This ETF tracks gold prices as determined by the London PM fix and actually holds gold as a custodian.
Investors flocked to GLD in September, pouring in an additional $4 billion, on top of the $17.4 billion in assets the ETF had at the end of August.
Don't Get Blinded by Gold's Shine
A gold-focused investment may be a way to diversify a portfolio, but that's all it should be: diversification. Don't place all your bets on one sector or asset class. It was that singular emphasis, on real estate and before that on technology stocks, that has tripped up investors in the past.
Gold has shone brightly during dark times before but as quickly as it soared, it also lost its luster.
Look at gold, and gold stocks, for what they are, a safer haven in a time of uncertainty. Invest accordingly.
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