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Gold ETFs or mining stocks?

Gold ETFs or mining stocks?
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First Published: Sun, Jun 15 2008. 11 53 PM IST

Updated: Sun, Jun 15 2008. 11 53 PM IST
Investing in gold exchange-traded funds (ETFs) is the closest to buying physical gold. Buying gold mining stocks is another option. Gold stocks have had amazing success in the past and have been known to provide positive leverage to gold of 5.4 to 1 (based on the climb of HUI, an index composed of the 15 best gold producing companies in the world, against gold, over six years starting 2001). What this means is that for every 1% rise in gold, there is a 5.4% rise in the stocks of gold mining companies
Executive director, Benchmark AMC
We feel that investment buying of gold need not be in the physical form, and gold exchange-traded funds are best suited to cater to this investment requirement.
The other way is to invest in gold mining companies via a sector fund. Here, too, the investment will have some co-relation to the price of gold. But it is not the same as buying gold itself. The price of gold may rise, but if the company is not producing because of labour unrest, then it defeats the purpose. But, on the other side, the gold price may be steady but due to increased productivity, the company may declare extra profits. So, they may do well at a time when the price of gold is not moving upwards.
CEO and CIO, Quantum AMC
An investment in ETF provides investors with a pure gold play as investments are only in the form of physical gold. So, the returns are determined purely by the movement in the price of physical gold. Investments in gold mining stock are dependent on the financial performance of the company in question. So, the stock returns could differ between two gold mining companies depending upon their financial performance. There need not be any direct correlation between the price of gold and the stock price of a mining company. Investing in a gold mining stock would need an understanding of the company financials, the management team, its margin profile, the business cycle, labour issues, strikes, etc.
Executive VP and head (business development and risk management), DSP Merrill Lynch Fund Managers
Because of the leverage of stocks to gold, you get much better price performance. Yes, volatility will exist, but it will be there in the price of gold as well as the shares of gold mining companies. A Gold ETF is only affected by the price of gold. But, should you buy gold mining stocks, it not only has a co-relation to the price of gold but also has efficiency gains. Gold prices have reached a level where it will not fall lower. So the profitability of gold mining companies will be higher.
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First Published: Sun, Jun 15 2008. 11 53 PM IST