Investing in gold shares

They’re celebrated as a safe haven, but geopolitical shifts may affect mining profits.

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In a world of high inflation, gold and gold shares have always been hailed as a safe fallback for investors. But the companies responsible for this flashy commodity aren’t immune to risk and must be mindful of economic and geopolitical fluctuations in the countries they operate in. Here's what you need to know before investing in gold stocks.

What are gold stocks?

Gold stocks are stocks from companies involved in the mining and production of gold. The category is heavily dominated by mining companies, but investors in Australia can also back gold streaming and royalty companies: companies that fund mining efforts in exchange for the opportunity to buy gold at a set price in the future.

Gold stocks are one way for investors in Australia to gain access to this historically significant commodity. There are also other ways to invest, including gold exchange-traded funds (ETFs) and purchasing physical bullion and coins.

Why invest in gold stocks?

Gold stocks can help diversify and stabilise your portfolio while simultaneously representing the cultural and historical significance of gold. Simply put: gold is valuable. It was valuable thousands of years ago, and it’s valuable now. It predates modern currency and its price tends to move independently of the stock market, strengthening its diversifying properties.

Historically, the price of gold has risen in tandem with the cost of living. This makes it a powerful hedge against inflation. It also tends to perform well in a down market as people fall back on the security of gold and cash in times of economic uncertainty. For an example of this phenomenon in action, look no further than the 1930s — when the market crashed, the purchasing power of gold skyrocketed.

With its ability to weather highs and lows and its inverse relationship to stocks, gold makes for a solid portfolio stabiliser.

How is it a hedge against inflation?

Inflation hedging can help protect the value of your share portfolio and other investments by working as an insurance against falling prices. For example, take a share that rises by 2%, while inflation is at 3%. In this situation you are actually losing 1% after inflation.

During periods of inflation, the costs of consumer goods increase and become more expensive, meaning the dollar value per item decreases. Since gold is dollar-denominated, its price also increases in line with the rising inflation.

This makes gold a good hedge against inflation, helping those who want to protect their assets.

Top gold stocks

Gold mining is an international enterprise. While there are plenty of options to invest in Australian companies, you may also want to consider companies headquartered outside Australia:

What ETFs track the gold category?

Stocks aren’t the only option for investors in Australia interested in gold — there are numerous ETFs that track the gold category. These ETFs follow numerous sub-categories of the industry, including mining companies, exploration companies and the asset itself:

  • VanEck Vectors Gold Miners ETF (GDX)
  • BetaShares Global Gold Miners ETF (MNRS)
  • BetaShares Gold Bullion ETF (QAU)
  • ETFS Physical Gold (GOLD)
  • Perth Mint Gold (PMGOLD)

.

Outside of stocks and ETFs, there’s also the option of purchasing physical gold, including coins, ingots and bars. If you plan to buy physical gold, make sure you have a secure place to store it before you invest.

Risks of investing in gold

Remember an investment in gold stock is not the same thing as an investment in gold bullion. Instead, you own part of a company that mines gold. That means you need to be wary of both how the company is performing and the price of the asset. This is because at a certain price gold is profitable for miners after the cost of production. Fall below that price and the businesses you've invested in are losing money.

Most gold stocks are vulnerable to the same risks as other mining stocks, namely: economic shifts, geopolitical changes and natural disasters.

Where a mine is located factors heavily into its potential profitability, with many mining companies managing international operations. The political climate of the country in which a gold mine is located can affect material prices and businesses processes.

Gold mining companies also need to contend with Mother Nature. Natural disasters, while uncommon, may sideline mine operations for months, depending on the extent of the damage.

Adding to the potential risks is share market fluctuations. While the price of gold will have a major impact on the value of gold shares, it is not the only impact. Natural causes, geopolitical threats and general business impacts can all impact sentiment around a company and it's share price.

Compare trading platforms

To buy gold stocks, you’ll need a brokerage account in Australia. Narrow down your options by comparing features and fees.

1 - 9 of 9
Name Product Standard brokerage fee Inactivity fee Markets International
eToro (global stocks)
US$0
US$10 per month if there’s been no login for 12 months
Global shares, US shares, ETFs
Yes
Zero brokerage share trading on US, Hong Kong and European stocks with trades as low as $50.
Note: This broker offers CFDs which are volatile investment products and most clients lose money trading CFDs with this provider.
Join the world’s biggest social trading network when you trade stocks, commodities and currencies from the one account.
Tiger Brokers
$6.49
No
ASX shares, Global shares, US shares
Yes
Exclusive to Finder: Sign up to Tiger through Finder and on completion of your first deposit of any amount or transfer of shares receive 1 extra free GoPro share. T&Cs apply.
Get started with $0 brokerage on ASX and US stocks for the first 3 months upon completion of your first qualifying deposit. Also receive a free Apple share if you deposit $3,000 or more.
SelfWealth (Basic account)
$9.5
No
ASX shares, US shares
Yes
Trade ASX and US shares for a flat fee of $9.50, regardless of the trade size.
New customers receive free access to Community Insights with SelfWealth Premium for the first 90 days. Follow other investors and benchmark your portfolio performance.
IG Share Trading
$8
$50 per quarter if you make fewer than three trades in that period
ASX shares, Global shares
Yes
$0 brokerage for US and global shares plus get an active trader discount of $5 commission on Australian shares.
Enjoy some of the lowest brokerage fees on the market when trading Australian shares, international shares, plus get access to 24-hour customer support.
Superhero share trading
$5
No
ASX shares, US shares, ETFs
Yes
Sign up & fund your account with A$100 or more and receive US$10 of Tesla stocks on Superhero. T&Cs apply.
Enjoy $0 brokerage on US stocks and buying ETFs as well as a flat $5 fee to trade Australian shares.
CMC Markets Invest
$0
No
ASX shares, Global shares, mFunds, ETFs
Yes
$0 brokerage on global shares including US, UK and Japan markets.
Trade up to 9,000 products, including shares, ETFs and managed funds, plus access up to 15 major global and Australian stock exchanges. Plus, buy Aussie shares for $0 brokerage up to $1,000. (Limited to one buy order per stock per trading day).
GO Markets Share Trading
$7.70
No
ASX shares, Forex, CFDs, ETFs
No
Zero Brokerage on your next 50 trades!
Simply transfer an existing HIN before 30 June and pay no fees on your next 50 transactions. Alternatively, transfer your existing shares and receive 5 transactions at zero cost for each shareholding transferred, once again up to 50 free trades. T & Cs apply
Saxo Capital Markets (Classic account)
$5
No
ASX shares, Global shares, ETFs
Yes
Access 19,000+ stocks on 40+ exchanges worldwide
Low fees for Australian and global share trading, no inactivity fees, low currency conversion fee and optimised for mobile.
Bell Direct Share Trading
$15
No
ASX shares, mFunds, ETFs
No
Get $300 free brokerage until 30 June when you move to Bell Direct. T&Cs apply.
Bell Direct offers a one-second placement guarantee on market-to-limit ASX orders or your trade is free, plus enjoy extensive free research reports from top financial experts.
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Compare up to 4 providers

Important: Share trading can be financially risky and the value of your investment can go down as well as up. Standard brokerage is the cost to purchase $1,000 or less of equities without any qualifications or special eligibility. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.

Bottom line

No investment is free from risk, and gold stocks are no exception. Before you buy in, weigh the potential benefits against the risks to determine whether gold stocks are a practical addition to your portfolio.

Compare brokerage account features and fees to find the trading platform best suited to your investment goals and budget.

Frequently asked questions

Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.

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