Precious metals mining is an incredibly tough business. The prices of gold and silver are often defined by capricious, emotionally-driven investors, as well as a futures market that favors short selling by major players. When gold prices do start to run away, miners scramble to ramp up production of gold and silver, but the timing is far from perfect, as gold prices can decline based on economic growth and better opportunities in equities markets.
That’s one reason it’s almost always a better idea to invest in gold bullion instead of in gold mining stocks. Even when gold prices are skyrocketing, gold companies can struggle, such as during the last great gold bull run that lasted until 2011. While gold investors enjoyed record-high prices and many made fortunes cashing out with real gold bullion, investors who stuck to gold mining shares were rocked by bad luck and worse decisions. Over-ambitious mergers and acquisitions among major global mining companies meant that despite high prices, mining company stocks paled in comparison to the yellow metal itself. Buying a company’s stock isn’t just about buying into the product, it’s about buying into the company’s management and profit margins.
Every year, about 2,500 tons of gold are produced by mining companies and added to the global stock. The world’s largest gold mining countries are Russia, Canada, the U.S., Australia, and the world’s single largest gold producer, South Africa. Despite having some of the world’s richest gold deposits, as of 2018, only 20% of gold mines in South Africa are profitable, just to illustrate how tough the business can be.
When it comes to gold demand, gold is consumed across the world in vastly different ways. Jewellery is consistently the largest use for gold, though recently in Q1 and Q2 of 2016, investment outpaced jewellery consumption. The second-largest use for gold is the investment, where mined gold is turned into gold rounds, gold bars, and gold coins and bought by private investors. Next are technology and central banks, which trade back and forth between third and fourth place. Central bank gold purchases have been driven by Russia and China, both of which have been aggressively building their gold reserves. Meanwhile, the technology uses for gold include computer electronics, satellite communications, nanotechnology, and medicine. Gold is highly valued in electric conductors as it’s resistant to rust and corrosion. Small amounts of gold also wind up in the garbage and in the sewers!
If you’re interested in investing in gold, follow the live gold price before you buy. Gold mining stocks are a risky investment whereas gold bullion itself is more often a safer, more reliable investment. There are ways to make buying and owning gold bullion as easy—if not easier—than buying stocks. Online gold dealers like Silver Gold Bull ship gold coins and bars and offer allocated storage solutions. You can easily own more gold than you can reasonably keep in a safe at home through allocated storage while buying it online is straightforward and convenient. The next time you’re thinking about entering the gold market, remember that gold bullion is more reliable than gold mining stocks.