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Getting Started with Gold

This is your Pro Guide to the Resource Revolution, where we focus on what we feel are the “Big 5”... the five key resources where we expect the growth in demand to outperform the rest of the market.

And an essential on that list is the king of all commodities: GOLD.

Gold has been sought after by humans for millennia, and no other commodity has been more important to society as a unit of value.

Today it’s used as a precious metal, it’s used in industry, it’s used in chemistry, and then it’s also used by billions of people for its decorative and sentimental value.

Gold is more important now than it’s ever been before -- and the recent record price highs reflect that importance.

Here at Digest Publishing, there are three different ways we approach gold as investors.

Approach #1: Physical Gold

It's the most obvious, gold as a backup store of value... gold coins, gold bars, gold ingots, which are collectively known as “bullion.” For practical purposes, you can also include most of your gold jewelry and other accessories as well, really anything that’s near-pure gold. This first approach to gold is your backup of backups. 

Now, it’s important to note here that we have different takes on this as editors. For example, our co-founder Nick Hodge considers gold bullion to be an important part of every wealth plan. He believes that most investors should consider putting 1% to 5% of their net worth into gold. 

Nick personally holds that amount in gold bullion. As Nick told me... it sits in a safe that’s hidden away. He doesn’t look at it, he doesn’t think about it, and he hopes to never use it. At one point he hopes to pass it along to his children and other heirs, so that it can sit in their safes. It’s the family backup plan that will hopefully never be needed... and handed down to whatever generation might truly be forced to make use of it.

My co-editor for Profit Cycle Pro, Ryan Stancil, takes a slightly different approach. He holds his gold in collectible coins. That’s because in addition to the value of the near-pure gold it’s made of, it can also carry value in its design and collectability. And that collectible value can grow over time, making it a sound investment. Plus, as Ryan explains, it’s a lot of fun. But keep in mind that it does take some experience if you want to get the most out of its collectible value. Ryan has spent decades in the collectible world, and so he has a keen sense of what collectors are looking for.

Gerardo tends to prefer an all-gold-stock strategy over any physical gold itself. Up to this point I’ve followed a similar tactic. I personally don’t own any physical gold, though at times I’ve owned shares of gold that are held custodially in a vault.

At the end of the day, the decision of how and why to hold physical gold is a personal one. But all of us are in unanimous agreement that EVERY investor should put in a little time and research into deciding what fits you best... and that you should revisit this every decade or so to make sure you have a wealth plan that’ll stand the test of time.

Approach #2: ETFs and Funds

This is where we trade gold as a commodity. By this I’m primarily referring to gold funds and ETFs that are traded according to gold’s value, as well as the value in the gold space itself. 

Some ETFs are built to directly track gold's price, and move tightly with the spot price and the price of futures. The largest and most notable of these is SPDR Gold Shares (NYSE: GLD), which is built to track the price of gold tick for tick, and provide direct exposure. Goldman Sach’s Physical Gold ETF (CBOE: AAAU) is another example.

Other ETFs take a broader approach, and take into account some of the exploration and production side of the market. These ETFs don't necessarily move as directly with the price of gold. depending on what kind of market we’re in. VanEck Gold Miners ETF (NYSE: GDX) is a perfect example, it’s an ETF with broad exposure to major gold producers. It also has a companion for the micro and mid-cap side of the market, VanEck Junior Gold Miners ETF (NYSE: GDXJ), which focuses on junior explorers and producers.

Nick Hodge takes gold ETFs seriously, and they usually account for 5% - 10% of his portfolio.

Some ETFs carry leverage, meaning they make moves that are 2x or 3x greater than the market as a whole. Nick doesn’t often use leverage, and if he does, these are for short-term trades that last only a few days, perhaps a week or so at most.

I personally take more of a situation-based approach to gold ETFs. I tend to only use gold ETFs when I’m trying to ride a broader market trend, and so when I do, I use some leverage. The idea is to ride the macro movement.

For example, when I see headlines that say “strong dollar, strong dollar” that’s when I personally believe it can be a good time to buy gold ETFs, since gold most often moves inversely to the dollar. It’s a contrarian move, because gold is cheap compared to the dollar.

And then when I see headlines that say “debt ceiling crisis” or “crisis at the Fed” or “banking crisis” that’s often a good time to sell, because the price of gold loves a good crisis.

But there’s a lot that goes into this.

For Nick, one major factor is if gold stocks are overvalued or undervalued in relation to the price of gold.

There are also precious metals ETFs that can broaden your exposure to include silver, platinum, and other metals. Those are especially useful when silver, which often moves according to industrial demand, is in favor.

Approach #3: Gold Stocks, Especially Juniors

And then the third approach to gold is by investing in the exploration and production companies that discover it and pull it out of the ground.

This is where I tend to focus my efforts as an investor.

As with other resource stocks, there are several types of companies in the space.

The first type of company is a royalty company. As their name implies, they operate on the finance side, providing loans to exploration and production companies in exchange for a percentage of all the gold that’s produced. Royalty companies are often one of the safest ways to invest in this space, as they provide broad exposure to the market as a whole, and tend to be less affected by individual failures. Nick features a number of gold royalty companies in his research service Foundational Profits.

And then there are the resource companies themselves, which are divided into majors and juniors. The major companies are exactly that, huge conglomerates with a lot of projects and billions of dollars, most notably Newmont Mining and Barrick Gold. 

And then, of course, juniors are the small companies in the space, and most of those juniors are on the exploration side.

This is where we put our focus at Digest Publishing. 

Especially Gerardo Del Real. His primary area of interest is in juniors that specialize in exploration.

Nick Hodge has also spent more than a decade following juniors as well. Nick sometimes is a little broader, covering junior producers as well, but he and Gerardo are for the most part aligned on their coverage of the space.

It’s how they first met, and covering gold exploration juniors is where Digest Publishing first got its start.

Here’s what I do as an investor: I listen to Nick and Gerardo, and I follow them move-by-move. 

While I’ve had some success in following silver companies, or in companies with copper-gold projects, for the most part I listen to the two guys who’ve been doing this since the beginning.

Nick Hodge’s Foundational Profits and Gerardo Del Real’s Junior Resource Monthly are great places to start. I was reading both of those publications long before I worked here as an editor, and in my mind they’re still the gold standard of resource investing.

My goal with Profit Cycle Pro, along with my co-editor Ryan Stancil, is to keep you in the loop on where Nick and Gerardo are headed--and as always, keep you in tune with the macro environment and the news events that’ll shape these investment opportunities.

Ryan and I cover this in our weekly mailings, so keep an eye out, because there’s a lot more ahead from gold.

Getting Started with Gold

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