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It is possible to participate in commodity fluctuations, especially those involving precious metals, in a variety of ways. One of these is mining stocks, or stock in mining companies. Seniors and juniors are the two primary divisions of mining stocks. The former are equities of commodities-producing, much larger mining corporations; the latter are stocks of smaller, less-capitalized mining firms with a more recent history. These characteristics make juniors riskier than seniors. In order to have exposure to the relevant commodity, mining stocks are sometimes viewed as a more practical option than holding actual metal. For instance, even if they don’t own any gold bullion, investors can benefit from a rise in gold prices because, normally, gold mining companies’ profits increase along with rising gold prices. Furthermore, because the commodities can be produced for less money than the spot price, mining stocks often offer leverage (however, this is not always the case and we invite you to check leverage of most important gold stocks and silver stocks using our investment tools). Mining stocks and commodity prices are significantly correlated, though not linearly. Actually, various firms and throughout time have different levels of sensitivity to commodity prices in their stock values. For instance, whereas other manufacturers might not have started production yet, some businesses have insurance against changes in the price of the metal they mine. Additionally, investors should be aware that buying mining stocks is not an investment in a particular commodity, but rather in a company that harvests gold from the ground.
Advice for Purchasing Mining Stocks:
Concentrate on regions with stable governments: We typically steer clear of mining companies that operate in countries like Venezuela or Russia or Mongolia that lack respect for property rights or the rule of law. Locals may feel as though a foreign mining company is robbing them of their birthright due to the inability to transfer a mine, despite the reality that they depend on the capital and expertise of the foreign enterprise to extract any value from the ground. Invest in mining stocks to hedge against inflation: To hedge against inflation, many investors buy shares of mining businesses, especially gold stocks. Some mining-related stocks provide dividends as well. But because they increase along with inflation and commodity prices, the bulk of mining stocks also act as an inflation hedge. Aim for a dividend yield: Copper stocks typically have higher dividend yields than gold companies because of their steadier demand and more predictable pricing. Additionally, they are often much less expensive than gold stocks when comparing their earnings and cash flow. As a result, they might have less leeway to fall if markets decrease broadly. Another way to put it is that they might not be as hazardous as gold. Purchase mining ETFs, especially those with a focus on gold and silver: Prices for gold and silver have been trending upwards overall in 2019.
