Gold has had a great run. Over the last three months, its price has risen from around $1,700 per ounce to around $1,950.
Plenty of industry experts think the yellow metal can rise much higher. For example, analysts at Goldman Sachs recently raised their target for gold to $2,300, citing concerns over the longevity of the US dollar as a reserve currency.
Meanwhile, Tawhid Abdullah, chairman of Dubai Gold and Jewellery Group, recently said he thinks the gold price could hit $2,500 per ounce in the not-too-distant future.
If you’re bullish on gold, and expect it to keep rising, there are a number of ways you can potentially profit. Here’s a look at three simple ways to take advantage of a rising gold price.
The easiest way to invest in gold
Without doubt, the most straightforward way is through exchange-traded products (ETPs). These are securities listed on the stock market and designed to track the price of gold.
Gold ETPs offer investors a number of advantages. Firstly, you can buy and sell them just like regular stocks, meaning they offer a very easy way to gain exposure to the gold price. Secondly, you can hold them within an ISA or SIPP, meaning all gains can be tax-free. Third, they’re very cost effective. Fees on gold ETPs tend to be very low.
Some examples of gold ETPs include WisdomTree Physical Gold and iShares Physical Gold.
Own physical gold
Another approach to investing is to buy physical gold from a dealer. You can buy gold bullion bars and coins online, or through high street dealers.
On the downside, however, you’ll have to find somewhere to store your gold securely. Transactions costs are also high.
Mining stocks: a leveraged bet on the gold price
Finally, you could also consider investing in UK gold mining stocks, companies that are involved in gold production and trade on the stock market.
The advantage here is that they can actually outperform the gold price when it’s rising. This is because a rise in the gold price can have a dramatic affect on the profitability of gold companies. If the gold price rises significantly above the cost of production, the increase tends to go straight to the company’s bottom line. That drives the company’s share price higher.
Of course, if the gold price falls significantly, profits can be wiped out. This means gold stocks can fall heavily too.
There are many gold mining stocks listed on the London Stock Exchange. These range from FTSE 100 giants, such as Polymetal International, which is a top-10 global gold producer, to small-cap stocks such as Greatland Gold, which is focused on mining in Australia.
Generally speaking, the smaller the company, the higher the potential rewards. But that also means there’s a higher potential risk too.
My advice, if you’re interested in investing in gold mining stocks, is to spread your money over a few different stocks. This will help minimise your stock-specific risk.