Analyzing Gold as an Investment Class and Mining Business



Gold as an investment

Gold is the most popular among all of the precious metals including silver, platinum, and palladium. Gold investments are seen as a source of diversification for a portfolio. It’s important to remember gold’s safe-haven feature. It refers to the high demand for gold investments when economic conditions get worse and no asset class seems to be a good choice for your money. Gold almost acts as a hedge against the financial crisis.

Futures and options can also be used for gold investments. As of September 4, 2015, gold futures on COMEX—a division of NYMEX—are trading at $1,121.40 per ounce.

Economic conditions are the most important aspect affecting gold’s price. The demand, supply, and the mining procedure are also important. However, the amount of the contribution that each factor has on gold’s price movements remains a mystery.

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Gold mining business

Gold mining is a business with operations on every continent except Antarctica. In 1970, South Africa produced roughly two-thirds of all the gold production with an annual mine output of around 1,000 tonnes. The figure fell to 168 tonnes in 2014. Now, the country is ranked sixth among gold producing countries.

Over the years, more countries have emerged as gold producers. This means that the mine supply has become less geographically concentrated and more stable. However, the gold mines vary greatly in the types and scale.

In the last ten years, the annual gold mine output globally averaged 2,700 tonnes. In recent years, the production rose to over 3,000 tonnes. Such a rising trend likely won’t continue for much longer. A range of factors including cost pressures, lack of substantial discoveries, and a reduced project pipeline will likely see production revert to its longer-term levels.

Ranked in descending order, the major mining countries across the globe include China, Australia, Russia, the US, Peru, South Africa, Canada, and Mexico. These countries have a production volume in tonnes of 462, 272.4, 266.2, 210.8, 171, 167.9, 151.3, and 110.4, respectively.

Top mining equities

Investors can gain access to gold through ETFs like the SPDR Gold Shares ETF (GLD) and the iShares Gold Trust (IAU).

The top mining equities listed on the NYSE include Barrick Gold (ABX), Newmont Mining (NEM), AngloGold Ashanti (AU), and Goldcorp (GG). These stocks account for 24% of the Gold Miners ETF (GDX).

In the next part of this series, we’ll discuss the largest gold mines.


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