3 Ways to Capitalize on Gold

gold prices - 3 Ways to Capitalize on Gold

Source: Shutterstock

As the bear market beat rolls on, investors have had to look outside of equities for strength. Bonds have performed admirably, living up to their safety status. But so too have precious metals. Indeed, gold prices have marched persistently higher over the past six weeks, breathing new life into an area that has been dead money for five years.

Of course, the ages of meandering weren’t without cause. Booming stock prices and a risk-on environment created little incentive for investors to park their dollars in gold. With the S&P 500 bounding higher by double-digit percentages every year, who wants to relegate themselves to underperformance in a dingy old metal?

But times are a changin’. What was loved is now loathed and vice versa. Gold is glittering once more.

Investors seeking exposure to the magical metal have a variety of choices at their fingertips. Today we’ll explore three of my favorite.

SPDR Gold Trust (GLD)

3 Ways to Capitalize on Gold: SPDR Gold Trust (GLD)

The first and undoubtedly most straightforward way to add gold exposure to your portfolio is to, well, buy gold! No need to mess with your local gold peddler. Buy it using the popular exchange-traded fund, the SPDR Gold Trust (NYSE:GLD). It’s a pure play that tracks the movement of gold prices in the futures market tit for tat.

The primary difference is gold futures are trading for $1,290 and GLD is trading for $121. At approximately one-tenth the price, GLD offers a much cheaper and thus more accessible avenue for incremental exposure to the shiny stuff.

Since bottoming at $111.06, GLD is up about 10%. Meanwhile, the S&P 500 is down about 15% over the same time frame. Their current positioning on opposite sides of a teeter-totter perfectly illustrates the appeal of GLD in a bear market. If the relationship holds, further losses in equities will bring bigger gains to gold.

Gold Miners ETF (GDX)

3 Ways to Capitalize on Gold: Gold Miners ETF (GDX)
Source: ThinkorSwim

If the low-beta behavior of GLD isn’t enough to move the needle, then you can always take the parallel route of playing gold miners. Since gold stocks boast a positive correlation with the underlying commodity, gains in one bring gains to the other. The primary difference is that gold miners carry a lot more volatility than gold prices.

The most liquid exchange-traded fund available is the Gold Miners ETF (NYSEARCA:GDX). It tracks a diversified basket of the largest gold mining companies on the planet. To illustrate its higher beta, consider the magnitude of its ongoing rebound. While GLD has only risen about 10% from its Q4 lows, GDX is up about 23%.

With the ascent, GDX is now back above its 200-day moving average, so strides have been made in turning its longer-term downtrend.

AngloGold Ashanti (AU)

3 Ways to Capitalize on Gold: AngloGold Ashanti (AU)
Source: ThinkorSwim

The final avenue for banking on gold offers the highest risk and highest reward — buy an individual gold mining company. Since it’s a direct bet on a single stock it lacks the diversification offers by playing GDX. But as a tradeoff you also get unfettered participation on the upside if you end up selecting one of the best performers of the sector.

In sizing up the top holdings of the Gold Miners ETF, AngloGold Ashanti (NYSE:AU) was a standout. It was one of the only constituents that was outperforming GDX over the past six months, and it has done so by a country mile. Since bottoming last August, AU stock has almost doubled in value.

While past performance is no guarantee of future results, if you think that strength continues to beget strength then AU is undoubtedly one of the best candidates in the gold space right now.

As of this writing, Tyler Craig didn’t hold a position in any of the aforementioned securities. Check out his recently released Bear Market Survival Guide to learn how to defend your portfolio against market volatility.

Article printed from InvestorPlace Media, https://investorplace.com/2019/01/3-ways-to-capitalize-on-gold-prices-gld-gdx-au/.

©2022 InvestorPlace Media, LLC