Buying and selling gold stocks is a popular way of getting exposure to the price of gold without many of the costs and risks involved in holding bullion. Find out why gold stocks are popular recession plays, and the gold stocks to watch in 2022.
Quick links to content:
- Are gold stocks a good buy in a recession?
- How to buy and sell gold stocks
- Gold mining stocks to watch
Are gold stocks a good buy in a recession?
Gold stocks are thought of as a good buy in a recession, due to the close relationship between the precious metal’s price and the value of gold stocks.
Historically, gold prices rise when investors are bearish on the economy, as it’s used as a safe-haven investment and a hedge against inflation. We just have to look at the last few economic downturns – the dot.com bubble, the 2008 financial crisis, the 2020 pandemic and the Russia-Ukraine war – and we see the pattern of gold rising when bond yields fall.
While this pattern has existed in the past, it’s always important to look at the current economic situation before jumping in. For example, in October 2022, the price of gold fell by 20% from its all-time high as interest rates across the world rose – making gold less attractive as an investment, compared to interest-paying securities like bonds.
Learn how to trade gold online
But when the demand for gold does rise, it often draws interest to the companies that mine it. So, we tend to see an increase in gold stocks and gold-backed exchange traded funds (ETFs).
While gold outperforms during crises, it tends to underperform in the long term. This means buying gold as protection in a recession is generally only a ‘tactical’ short-term move.
Gold companies, on the other hand, can continue to post growth outside of a recession thanks to demand from other areas outside investor interest – such as jewellery and industry – and the mining of other metals, such as copper and iron ore. So, buying shares of gold companies can potentially earn higher returns than investing in physical gold.
There is a huge range of companies in the gold industry that you could trade, but not every gold stock has the same relationship with the precious metal. So, it’s important to do your research into the best gold stock for your needs.
Plus, trading gold stocks doesn't just have to mean going long. You can open a position that the price of a company's share will fall in price too when you use derivative products - known as shorting gold stocks.
Learn how to short a stock
How to buy and sell gold stocks
- Open an account or log in
With a City Index trading account, you can speculate on the price movements of 4,700 global shares – or you can practise trading gold stocks first in a risk-free demo account
- Do your research
Gold prices are constantly moving, which means so are gold stocks. Keep up to date with the latest news and analysis from our in-house team
- Decide whether to go long or short
Trading gold stocks via CFDs also means you can find opportunities in companies that are falling in price, as well as those that are increasing
- Manage your risk
Use stop-loss orders and take profits to automate your trading strategy and reduce the risk of loss if the market moves against your position
Remember, trading stocks via CFDs means you won’t receive dividend payments, but your position will be adjusted.
Learn more about CFD trading
Gold stocks to watch
The best gold stocks change regularly, as more information comes to light, regulations change, and the economic situation evolves. So, it’s important to always do your research into the different companies within the industry.
Broadly, gold stocks are divided into two categories:
- Gold mining companies
- Gold streaming and royalty companies
But you could also take a position on gold ETFs – some of which hold the precious metal, while others hold a basket of gold-linked company shares.
The best gold stock for you will also come down to what kind of stock you’re interested in and how it fits into your strategy. So, you could be looking for a company that delivers growth, value or dividends – or be looking to speculate on volatility if a company is hit by negative news.
Let’s take a look at each category, some examples of popular gold companies and which might be the best gold stock for you.
Gold mining stocks
Gold mining stocks are the shares of companies that are involved in the exploration, mining and production of gold.
Larger gold mining stocks tend to deliver more stable growth and dividend payments, while junior miners’ share prices are a lot more volatile. So again, it comes down to your strategy and what interests you.
The top three gold mining stocks in the world by market capitalisation – as of October 31 2022 – that are available to trade with City Index are:
- Newmont Mining ($34.02 billion)
- Agnico Eagle Mines ($27.99 billion)
- Barrick Gold ($26.80 billion)
All three of these companies are listed in the US or Canada, but it’s worth noting that there are large mining companies listed on the London Stock Exchange and Australian Stock Exchange.
For example, while BHP Group, Rio Tinto and Glencore are known for producing other metals, they do also mine gold. And the ASX is home to two of the largest gold miners outside of the US, Newcrest Mining and Northern Star.
Newmont is the largest gold mining company by market capitalisation, worth $34.02 billion, thanks to its acquisition of Canada’s Goldcorp in 2019. Newmont is the only gold mining stock listed on the S&P 500 stock index – which tracks the largest US companies by market capitalisation.
The combined company has operations all across the world, including in the US, Latin America and Australia, which are expected to produce a combined 6.2 million ounces of gold in 2022.
Aside from gold, Newmont also mines other metals such as silver, copper, lead and zinc, which means trading the company gives a broad exposure to commodities.
Agnico Eagle Mines
Agnico Eagle Mines is a Canadian-based gold producer. Its gold reserves are concentrated in Canada, and those outside the country are in Finland, Australia and Mexico. As of 2022, it also has new development and exploration projects in the US and Colombia.
In 2022, Agnico expects to produce between 3.2 and 2.4 million ounces, much lower than the other two miners we’ve covered. But one of the main appeals of Agnico is that has reasonably low operating and capital costs – especially compared with some of the larger miners, like Barrick. Agnico said its production costs were $835 for each ounce of gold it mined – compared to Barrick’s $1,188 per ounce.
Although Agnico’s is considered a high-growth company – especially after it acquired Kirkland Lake Gold in 2021 for $13.51 billion.
Barrick Gold stock
Barrick Gold was the largest of the mining stocks until the merger between Newmont and Goldcorp. It’s still one of the most popularly traded gold mining stocks, due to its top-tier mining portfolio – which is expected to produce 4.2-4.6 million ounces of gold in 2022.
It also saw a major influx of investment during the 2020 pandemic thanks to a $562 million investment from legendary investor Warren Buffet.
Barrick has also been steadily paying down its debt over the past decade, which means it’s reduced its interest costs and kept more of its profits. This means it now distributes a more attractive dividend – its base dividend will be supplemented with a performance dividend of up to 15 cents per share depending on how much its net cash increases by each quarter.
Gold streaming and royalty stocks
Streaming and royalty companies provide cash to gold mining companies for the right to buy the precious metal in the future. Essentially, once a mining project is complete, these companies receive their initial capital back in gold. They’d sell this on the market and earn their cash. This cash is then used to reinvest into new deals or pay a dividend to shareholders.
Streaming and royalty companies are often thought of as a lower-risk means of getting exposure to gold, because they don’t face the operating costs that can plague the bottom lines of mining companies.
However, as these royalty companies could have multiple exposures, it does require a lot more research from traders.
The top two gold streaming and royalty stocks by market capitalisation – as of October 13 2022 – that are available to trade with City Index are:
- Franco Nevada Corp ($32.54 billion)
- Wheaton Precious Metals ($15.04 billion)
Franco-Nevada is a Canadian streaming and royalty company, with agreements in gold, silver, platinum group metals (PGMs), iron ore and oil and gas. Approximately 80% of its revenue is generated through gold agreements, but it’s not a pure play gold stock so it does give you a diversified exposure.
Franco-Nevada boasts a debt-free balance sheet, which not only gives it the ability to invest in new agreements but means it has paid a dividend every year for the last 15 years.
Wheaton Precious Metals
Wheaton Precious Metals is the largest precious metal streaming and royalty company in terms of output – its agreements produced 750k gold-equivalent ounces in 2021. Wheaton also sells silver, palladium and cobalt deposits.
It has interests in 23 mines internationally, and 13 development projects.
As of June 30 2022, Wheaton is also debt free. However, like many other gold stocks, it has reported declining revenue and profits due to an increase in the gold price. The company still paid a dividend for the 11th year in a row.
It can be very difficult to find a gold stock that exactly tracks the price of gold, which is why trading on a gold ETF can prove a better decision for those looking for direct exposure.
If you’re looking for a pure-play gold ETF, the largest and most liquid is the SPDR Gold Shares. Its sole asset is gold bullion, which the firm stores in secured vaults. The ETF is more expensive than other gold ETFs, but it’s still preferable to figuring out the storage of gold yourself.
If you’re looking for a gold stock ETF instead, one of the most popular is the VanEck Vectors Gold Miners ETF. It’s the largest major gold company ETF on the market, providing diverse exposure to both miners and royalty stocks.
Its top five holdings, as of October 31 2022, are:
- Newmont Corp
- Barrick Gold
- Wheaton Precious Metals
- Newcrest Mining
Open a City Index account to speculate on the value of these gold stocks and ETFs, as well as thousands of other global shares.
Or, if you’re not ready, you can open a demo account to practise trading in a risk-free environment first.