What makes gold such an attractive investment candidate during trying times? Very simply it is a metal that is rare and is respected across borders. Currencies may come and go, but the theory is that the value of gold will live on. Also, its important to note that it has proved itself over time. Historic charts show that gold spiked from about $150 dollars an ounce in the mid 1970s to more than $1900 an ounce in 2011. (Think the value of gold is unshakable? Read The Gold Standard Revisited to learn of its rise and fall.)
So how can the individual investor go about investing in gold?
While collecting jewelry with a high gold content or gold coins is the preferred method by some, there are downsides to consider. For example, there is the issue of finding a safe place to store such merchandise. Finding a buyer for a particular piece may also be difficult. Plus there is sometimes a very big markup on certain pieces.
There is an alternative for investors to gain exposure to gold: the stock market. Below is a list of five of the larger players in this space.
| Company | Market Capitalization | P/E (ttm) |
| Anglogold Ashanti | $18.51 B | 22.5 |
| Barrick Gold | $53.96 B | 14.1 |
| Goldcorp | $42.69 B | 21.5 |
| Gold Fields | $12.86 B | 42.0 |
| Newmont Mining | $34.54 B | 15.6 |
The Risks
While gold has fared well in the past year, there is no guarantee that it will continue to do so. Another important thing to understand is that the price of gold can fluctuate widely. In 1980 the price of gold had risen to about $850 an ounce, a huge increase given that just a couple of years prior it was trading under $200. But, not too long after that spike, gold lost a bit of its luster (keep in mind that the domestic economy really started to hum right around that point). Long story short the price floundered until around the 2005 when interest started to pick up again.
Investors who purchased at or near the top of the market in the 1980 time frame had to wait about 25 years to recoup their investments. (To learn how to combine technicals and fundamentals to confirm trends in this commodity, read A Holistic Approach To Trading Gold.)
Top Picks
Barrick Gold
Based in Toronto, Canada, Barrick is a big gold producer with a name recognized throughout the world. The company sports 26 mines and has development and exploration work going on around the world. Barrick currently trades at about 9.44 times forward earnings, which suggests it is trading at an attractive valuation. The the icing on the cake is the shares carry a dividend. The current yield is about 1%.
Newmont Mining
Colorado-based Newmont Mining is a large gold producer with a presence across the globe as well. The company has proven staying power. It was founded in 1916 and has survived all the ups and downs of the market since then. NEM also carrys a dividend yield of approximately 1.8%.
Bottom Line
Over time many investors have flocked to gold particularly during times of crisis. Most investors continue to expect that its widespread international acceptance and recognition will cause this trend to continue. A little exposure to gold may help to mitigate the overall risk of your portfolio.
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