Monday, October 12, 2009

Getting Exposure to Gold

Purchasing physical gold can be difficult if you have to drive to a gold dealer, look through the inventory and then purchase your gold. You can buy gold online through several dealers as well. The problem is that you will pay a premium to the spot gold price when you buy and will get less than the current spot price when you sell. It is not easy to get in and out of physical gold rapidly. That is not to say that owning physical gold is not useful. It is just not for trading the gold price. I own physical gold but to get exposure to the record gold prices today, I own shares of gold mining stocks.

Why I Like Gold Mining Shares

I like the gold mining shares for several reasons:
  • I get exposure to the gold price. If gold is up, usually gold mining shares are up as well.
  • I can trade in and out relatively quickly and online through an online broker.
  • I can get portions of an ounce of gold. Rather than come up with $1000 to invest at a time, I can purchase a few shares when I am able.
  • The exposure I get can be leveraged. This is good when gold is up, but can be bad when gold is down.
  • Some gold shares pay dividends.
  • I can use options to hedge my gold exposure.

Currently, I own Goldcorp (GG) and Yamana (AUY). I have owned GG for almost 3 years now. The physical gold price is up 24% over the past year. GG one year ago closed at $24.70 and is trading now at just over $42 per share. That is an increase of 70%. See what I mean about leverage to the physical gold price. This is because most gold miners have fixed costs for mining an ounce of gold. Every time the gold price goes up, that usually goes straight to the profit column.

I have written several articles about investing in gold which you should check out:

Is investing in gold at record prices a good idea?

6 reasons you should invest in gold now

These are good articles that you should read. Feel free to look at some of my articles at HubPages as well. I strongly believe that everyone should have some exposure to gold, both through physical gold that you purchase to hold and through mining company shares that you can trade easily.

Until next time--Keep it REAL!

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