How to Buy Gold Stocks in Four Easy Steps
Gold has proven to be a sound investment for millennia. And in modern times, when financial markets are experiencing turbulence, that’s especially true. But jewelry and bricks of gold aren’t the only ways to get a piece of the action. That’s why we’ve put together this simple four-part tutorial on how to buy gold stocks.
First, let’s start with a quick history lesson. Gold has a long record of being used as currency. But even before the ancient Kingdom of Lydia began using gold coins as money (sometime around 700 B.C.), it was a symbol of wealth for the Egyptians. Because the shiny metal doesn’t corrode, it became a symbol of immortality and power.
The Greeks and Romans couldn’t get enough of the stuff. In fact, the Romans developed complex water-based mining operations. And as the Roman Empire expanded, it was able to exploit old mining operations and use better gold mining technology.
Fast-forward a few centuries and the quest for gold only increased. One reason King Ferdinand II of Spain agreed to sponsor Christopher Columbus’ voyage to the New World was the hope that he would discover more gold.
By the 1700s, nations around the world began to link their currencies to gold – known as the gold standard. The United Kingdom declared 77 shillings to be equal to gold at mint price. And the U.S. followed suit by declaring a bimetallic (gold and silver) standard for its brand-new currency.
But today, there is no gold standard. The British gave it up around the Great Depression. The U.S. abandoned it in 1971. And the last holdout, Switzerland, abandoned it more than 20 years ago.
In some ways, this is why gold has become a safe-haven investment.
How to Buy Gold Stocks
The quest for riches that prompted the expansion of empires continues to this day. It’s just easier to access now. In fact, investors can invest in gold without getting out of bed. Today, all you need is an internet connection, a computer or smartphone, and a bank account.
From there, you could get right to it and invest in gold bullion. But then you’d need someplace to securely keep those coins or bars. But investing in gold stocks is much, much easier. And you don’t need to worry about shipping costs. Here are the four steps…
- Pick an online broker.
- Determine which gold stocks to buy.
- Decide how much to invest.
- Plan your exit.
1. Pick an online broker. There are a bunch of them out there, so it can seem intimidating to choose the “right one.” But almost all of them offer the same basic services. You just want to look for one that has low – or no – commission fees and deposit requirements.
TradeStation, Robinhood, E-Trade, Fidelity and TD Ameritrade are all perfectly suitable options. Once you set up your brokerage account, you simply link your checking or savings account to it and make a deposit. From there, you’re essentially ready to go.
2. Determine which gold stocks to buy. Ideally, you’re looking for an investment opportunity that outperforms the market. You want to find a company with solid earnings growth and strong leadership and, possibly, one that can help rake in some passive income via dividend payments.
If you’re not interested in the research end of things, you can cut to the chase. But you’ll still have some decisions to make. Do you want to invest directly in gold companies?
Maybe you’d like to dabble in futures contracts, or maybe you’d like to explore the world of gold exchange-traded funds (ETFs). Maybe still, you’d like to skip the research and just pick up the five gold best stocks to buy. That part’s up to you.
3. Decide how much to invest. This is an important step. Any investment comes with some level of risk. It’s rarely a good idea to pick a stock and throw everything you’ve got into it. If you’re uncertain or new to investing, test out the waters first. Invest a little bit and see how it goes.
4. Plan your exit. At this point, you’ve got some capital in the markets. But this last step is usually the one that gets overlooked the most. It might sound a little crazy, but buying stocks with no plan of selling them isn’t a plan at all.
It’s vital that you know either when or why it makes sense to sell stocks. It could be to lock in profits. Or because the company you’ve invested in has made some foundational changes you don’t like. Maybe the investment was a bad one and your trailing stop was triggered. Whatever the case, know your exit strategy. After all, investors make a lot more money selling stocks than buying them.
The Bottom Line of Buying Gold Stocks
Gold has captured the imaginations of investors for ages. And it will continue to do so for ages to come. That’s why gold remains one of the most popular investments in the world.
Once the gold standard disappeared, it meant that money was nothing more than a social construct. On the other hand, gold has intrinsic value. Sure, its value will fluctuate here and there. But with a rise in value of the shiny stuff comes a rise in the value of gold stocks.
Now that you know how to buy gold stocks, you’re going to want to diversify your portfolio. So be sure to check out other investment opportunities as well. And if you haven’t already, don’t forget to sign up for our free Investment U e-letter below.
About Matthew Makowski
Matthew Makowski is a senior research analyst and writer at Investment U. He has been studying and writing about the markets for 20 years. Equally comfortable identifying value stocks as he is discounts in the crypto markets, Matthew began mining Bitcoin in 2011 and has since honed his focus on the cryptocurrency markets as a whole. He is a graduate of Rutgers University and lives in Colorado with his dogs Dorito and Pretzel.