How to buy gold
A question we get asked quite a bit from readers is how do I buy gold?
There are four main ways to invest in gold.
1.Buying gold buillion as in in coins, bars or jewelry
2. Investing in gold futures
3. Investing in gold Exchange Traded Funds (ETFs).
4. Investing in gold mining companies through stocks.
Watching the Dow/Gold ratio is an indicator that tells when gold is at the high, middle or low end of the scale is value.
During the years 1929 to 1942 and again during 1968 to 1980, the Dow/Gold ratio was around 20 and actually was outperforming the stock market. Today, that ratio is a little below 8. Those who bought gold in the slump in 1980 at the Dow/Gold ratio of 1 are starting to see an investment growth. This can be rewarding if you have patience.
Gold bullion
Any gold coin before 1933 is an excellent investment. The United States Mint website has a handy coin dealer’s database on their website. Buying broken gold jewelry, other gold items and collectibles can be an enjoyable way to collect gold for investment, but one must be aware of scams both on the selling and buying end and must take into consideration the premium values places on jewelry for the craftsmanship and design. Any jewelry over 14 karat gold is a good risk. Scrap gold is one of the safest and most enjoyable way to invest in gold.
Gold bullion is a relatively safe method also, and probably the best for the new investor. This is the method for investors willing to wait long term; as gold will resist inflation even after economies improve.
Gold Futures
Commissions for Gold futures, purchased through commodity traders, are negotiable. You are contracting to buy Gold at a higher value than you are actually outlaying in cash, with a belief in the future value. Investors should only invest capital that they can afford to lose. The benefit here lies in using leverage but using leverage also involves risk.
Gold Exchange Traded Funds
ETFs are purchased through the regular stock market avenues, with the same thoughts and processes of buying any stock. Buy low and sell high. We will do another post on gold etfs explaining the advantages of investing this way.
Gold Mining Companies
A very popular method of investing in gold is through gold mining companies. These are gold companies that are producing and/or are exploring for gold. You can buy these shares through the stock market. The Toronto Stock exchange is home to many of these gold mining companies. These companies are very volatile and can have explosive moves to the upside or downside depending on various factors. We will have a more in depth post all about gold mining companies in the near future.
Categories: Stock Tips Tags: gold, gold bullion, gold coins, gold etfs, gold futures, gold mining companies, how to buy gold, how to invest in gold
Tembo gold corporation: Junior gold stocks
Hi all… an article on gold and junior gold stocks from a reader Brian. Thanks Brian!
Junior gold stock: Tembo Gold
When looking at the long-term trend of gold, it is apparent that despite some recent downward pressure in gold prices, the multi-year bull market that began in the depths of the financial meltdown of 2008/2009 is still intact. This provides a strong probability of increased operating margins for the gold mining industry. Despite this, gold stocks have been underperforming drastically. Junior miners have had exceptionally bad performance recently due to the popularity of safe-haven investments like bonds and physical gold. Due to their temporarily depressed prices, it’s a good time to buy them.
Recently, many junior-miners have been having great success finding gold in Africa. Tanzania, home to African Barrick’s (LON: ABG) world famous Bulyanhulu Gold Mine, has been experiencing strong economic growth (7% GDP growth in 2010 according to the World Bank) largely due to the renewed interest in mining activities. Bulyanhulu has been estimated to still hold 11 million ounces of gold, which is being mined in extraordinary volume at an average cost of $539 per ounce. This mine has been a cash cow for Barrick (NYSE: ABX), which has investors and exploration companies excited to find other deposits that may be nearby.
A smaller company that has recently begun trading on the TSX Venture Exchange has acquired the rights to a 123 square-kilometer property that is located on the same greenstone belt as the Bulyanhulu Gold Mine. This company is Tembo Gold (TSX-V: TEM), which was created from the remains of Lakota Resources after its bankruptcy during the financial crisis of 2008-2009. Tembo has made great efforts to restructure its management, and also benefits with better funding abilities and the benefit of much higher gold prices and a business-friendly government.
The new management team is not lacking regional experience either. CEO David Scott has an enormous amount of experience in Africa, with 13 years spent in Tanzania and a total of 32 years in African exploration. Having worked directly at Bulyanhulu, his specific knowledge of the area’s geography will undoubtedly be useful. Chairman Dave Anthony, former COO of African Barrick, has 10 years of experience in Tanzania and oversaw the creation of the nearly Bulyanhulu Gold Mine mentioned earlier.
The company is in the process of an 87,000 meter drilling exploration which is expected to conclude at the end of 2012 according to the company’s website. The schedule states that the company will focus first on hotspots defined by recent field work, with both reverse circulation and diamond drilling to determine the hidden structures of gold deposits. $14 million has been set aside for this project, and updates will be released continuously.
There have been exciting drill interceptions on Tembo’s property in the past. The hole TEMRC056, drilled in 2007 by Lakota, had a grade of 36.7 g/t for an interval of 1m. DD001, performed in 2008, had 10.25 g/t for 3.5 meters.
In March, Tembo released some of the early results of its 87,000 meter drilling program which have encouraged management to continue. According to the company the best intercepts include TDD0004 at 3.13 g/t over 25.89m and 8.87 g/t over 3.89m, TRC0013 at 16.1 g/t for over 3m, and others. These are well within the range of profitability.
Another mining project is being developed by Tanzanian Royalty Exploration (NYSE: TRX) off the southern shore of Lake Victoria, which is in the general vicinity of Tembo’s property. The Buckreef Gold Mine has been announcing strong results from its own drilling program.
Shares have gone from $2.40 at the start of 2012 to just under $5 now, doubling investor’s stakes with just drill results. With a continuation of Tembo’s drilling program, it’s possible that its shares will be bought very heavily with more data confirming a high volume of profitable gold ore. The shares remain depressed now largely due to general market conditions, but this may not last much longer.
Categories: Stock Tips Tags: african gold stocks, gold, junior gold stocks, tembo gold corporation
Gold Royalty companies
Gold royalty companies provide upfront capital to developing gold mining producers to help with the expenditures of bringing the mine into production. In exchange for providing this upfront capital they receive a royalty on future production. Since building a mine is a very capital expensive expenditure that can often take several years this a win/win deal for both partners.
In exchange for waiting royalty companies receive an excellent return on investment especially if the commodity price increases. A tremendous advantage for royalty companies is that royalty deals are structured on a % of sales (production). This is important because as costs go up it does not affect the royalty company.
Two risks of investing in a gold royalty company are:
1) Production risk – This occurs when a partner does not meet production targets. This will for the most part be temporary as the partner figures out whatever issues it may be having.
2) Commodity price risk – This occurs if the commodity decreases in price. This is not a huge worry since most royalties have been bought at levels far below the current gold price.
The advantage of investing in gold royalty companies are:
1) Diversification – The big royalty companies RGLD and FNV have deals that are geographically diversified all around the world. Each company they have a royalty with is a small % percentage of the overall portfolio. If one or more company struggles it is not a huge impact on the overall portfolio.
2) Low overhead costs – Gold royalty companies only have to deal with administrative costs and can forget worrying about the actual expenditures of being a producer. With inflation increasing significantly over the last several years for gold companies this is a key advantage. The cash cost of production is becoming higher and higher and this is one of the reasons you see a lack of movement in gold companies even with the increasing gold price.
A list of gold mining royalty companies:
| Company | Symbol | Share Price | Shares outstanding | Market Cap | Dividend |
| Royal Gold | RGLD | $64.81 | 58,815,000 | $3,805,331,000 | .15 per quarter |
| Franco Nevada | FNV | $42.11 | 143,900,000 | $6,559,629,000 | .04 per month |
| Sandstorm Gold | SSL | $1.90 | 346,758,871 | $665,777,000 | n/a |
* Chart as of close on March 28,2012
Franco Nevada (FNV) – Is the largest gold royalty company with a market cap of $6.5 billion. They are led by chairman Pierre Lassonde who is considered by many to be a living legend in the mining industry. Franco-Nevada is the leading gold royalty and stream company in terms of revenue and number of assets. They hold over 200 mineral royalties and streams as well as over 200 oil and gas royalties. Franco-Nevada has a strong balance sheet with a cash position of over $794 million ($5.50 per share) at year end 2011. A monthly dividend is also a nice bonus of investing in FNV even with it only being 4 cents a share.
Royal Gold (RGLD) (RGL.T) – Royal gold is the 2nd largest gold company with a market cap of $3.8 billion. With strong management and a quarterly dividend of 15 cents a share Royal Gold is poised for growth. Royal Gold was named on the Forbes 2011 best small companies list coming in at #42.
Sandstrom Gold (SSL) – Sandstorm Gold is the smallest gold royalty company. It is led by Nolan Watson former CFO of Silver Wheaton which is the largest silver royalty company in the world. In 2012 so far Sandstorm is one of the best performing stocks on the TSX Venture going from $1.24 to $1.90 per share. The management team also runs a metals and oil royalty company Sandstorm Metals and Energy.
With a rising gold price keep these gold royalty companies on your watchlist.
James Fraser
Co-author Mining Stocks Investing Guide
Categories: Stock Tips Tags: franco nevada, gold, gold royalties, gold royalty companies, gold stocks, royal gold, sandstorm gold