Tuesday, December 27, 2011

A Different Way to Invest in Gold

When people think about investing in gold, they think of the traditional methods. These methods include gold bullion and coins along with gold stocks, funds and exchange traded funds.
There is another way to invest in gold that is rarely though about...that is investing into emerging market economies with large gold mining sectors.

The countries where the gold mining industry makes the biggest contribution to GDP are not places where you may think of like South Africa. But it is smaller countries such as Mali and New Guinea where gold a big part of the nation's GDP. Other countries where gold mining contributes a decent percentage of GDP include Tanzania, Ghana, Uzbekistan and Peru.

In Tanzania, for example, the value of gold exports has tripled over the past five years to $1.5 billion. And this is due solely to rising gold prices.

Of course, to further benefit from the expansion of the gold mining industry, these frontier market countries will need to continue stabilizing their politics and also put in more incentives, such as tax breaks, for overseas mining companies to establish operations in their country.

Since these are frontier markets investors may wonder to invest into their gold mining sector. The best way to do that is through gold mining companies which are heavily exposed to these countries.

One example is AngloGold Ashanti ADR(NYSE: AU) which has invested in Ghana, Mali, Tanzania and Guinea in the past few years. It also started exploration activities in Gabon and the Congo.

Another company to consider is Harmony Gold Mining ADR (NYSE: HMY) which has expanded its exploration activity in Guinea extensively.

Finally, Kinross Gold (NYSE: KGC) has expanded its operations greatly in West African nations.

Investors should keep in mind that in addition to the risk that gold prices will fall, there is still a large political risk in many of these countries. So investors may want to scale in to their positions.

1 comment:

  1. I believe that owning junior gold mining companies though an exchange traded fund is the best way to go.