Gold stock investments have been soaring in 2016 even as a the rest of the market has been challenged. And interestingly enough, physical gold bullion prices are only up about 16% since Jan. 1, 2016, while gold stocks are significantly higher.
That means if you’re looking to profit from the flight to safety and demand for this precious metal, a gold stock may be better than gold itself.
But which gold investment one do you pick?
Some of the best performers out there certainly have momentum on their site. A short list of the big winners since Jan. 1 include:
- 57% in AngloGold Ashanti Limited (ADR) (NYSE:AU) year-to-date
- 65% since New Year’s in Barrick Gold Corporation (USA) (NYSE:ABX)
- 95% in Sibanye Gold Ltd (ADR) (NYSE:SBGL)
These are some of the bigger pure-play gold stock investments out there, with Barrick commanding a market cap of about $14 billion right now. The scale of these operators makes them attractive, as does the fact that all of these stocks were projected to turn a profit in 2016 even before gold prices started to edge higher.
But not all is rosy for certain gold mining stocks. Royal Gold, Inc (NASDAQ:RGLD) has tallied a mere 10% gain — not bad in a down market, but less than actual bullion prices have appreciated year-to-date. Also worth noting is that RGLD stock is off about 40% in the last 12 months.
The long-term performance of other gold stocks is also questionable, with Yamana Gold Inc. (USA) (NYSE:AUY) and Goldcorp Inc. (USA) (NYSE:GG) both off by more than 30% in the last year despite some pretty strong performances in 2016.
The Best Way to Invest in Gold Stocks
For new money looking to invest in gold right here, it’s hard to stomach the run-up in a name like Barrick. The forward P/E of this miner is now over 30 after its big run, and that seems a bit rich even if this is one of the largest and theoretically most stable gold plays.
Diversified gold ETFs can help hedge you a little against the “all your eggs in one basket” approach; however, I would bias towards large-cap miners if you go that route. As of Feb. 10, the Market Vectors Junior Gold Miners ETF (NYSEARCA:GDXJ) was only up 15% year-to-date — not that much different that bullion — and many of these picks are unprofitable and much riskier than entrenched miners like Barrick or AngloGold.
That’s not to say you can’t make money by swing-trading small cap miners. I personally own a stake in Yamana Gold, which is unprofitable as yet but continues to improve based on the environment. I think the same holds true for other small companies that may be strategic plays right now as a swing trade.
Of course, swing trade is the key in these volatile players. I should also admit that I have already sold half of the shares I bought earlier this year to protect some rare profits in this difficult market, and I am intending to hold my remaining AUY stock for weeks or months, not years or decades.
It’s a choppy environment, to be sure, but one thing is certain: The risk-off environment favors bullion and gold stock investments right now. Pick the investment that fits your risk profile and run with it.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he held a long position in AUY.