Gold Rushed: Investing in Gold

A great way to get into the precious metals craze going on right now is to look towards mining and producing companies dealing with precious metals such as gold. One of those gold mining stocks is Agnico-Eagle Mines Limited (NYSE:AEM) located out of Toronto, ON. At the time of this writing AEM was trading at just over $70 per share with a market capitalization of $10 billion.

AEM produces gold through it’s gold mining operations located in northwestern Quebec as well as mine construction projects in that same location. Agnico-Eagle is also mine construction projects located in Finland and Mexico with exploration operations in all of those countries as well as the United States.

Over the past year the companies stock as increased 86% fueled no doubt by the huge climb in gold prices. The company claims large potential for growth through press releases found on it’s website where Agnico-Eagle boasts that its largest mine is the 100% owned LaRonde mine. LaRonde is Canada’s largest gold deposit in terms of reserves. This has allowed AEM to have low operating costs and provide the company with other previous metals such as silver, zinc, and copper which are byproducts of the mine. Development at LaRonde is expected to keep the mine going through 2020.

Other gold mines the company is constructing hope to add to this growth and include Kittila in Finland and Meadowbank, Lapa, and Goldex in Canada. From 2006 to 2007 Agnico increased it’s gold reserves by 33% and looks to increase those reserves by 5 five over the next 2 years. They also are looking to produce over 350,000 more ounces of gold this year than they did in the previous year.

Their stock, however, appears to show this growth already factored into the price as it trades at a P/E ratio of 69. Is this a case of investors loving the stock because of it’s potential growth, or investors joining the bandwagon of buying gold in a bull precious metals market.

Recently we discussed the iShares ETF IAU which is a gold trust ETF like the silver trust ETF SLV. Now here’s another one that, if you’re into ETFs, you may be interested in. It’s called streetTRACKS Gold Trust (GLD).

Like IAU and SLV, GLD buys and stores gold and allows investors to buy a share of the gold it owns. The price basically tracks the price of gold per ounce at about 1/10th the value of an ounce of gold. Fees are taken off for running the fund, which is the reason for not tracking the price exactly.

Currently, the precious metals market has been taking off as investors try and find a safer place to put their money than the stock market. If you want to buy gold, rather than buy gold bullion, you can purchase gold through the ETF and take advantage of long term capital gains tax benefits. If you buy gold bars or coins you’ll need to pay full capital gains taxes.

These are just some of the advantages that buying gold through ETFs such as IAU and GLD can offer.

If you want to get into gold and you don’t want have gold bullion collecting dust in the corner of your safe deposit box, then an iShares electronically traded fund might be the way to go for you. With iShares IAU ETF you can own a fractional ownership of gold held by the iShares Gold Trust.

Rather than own large sums of gold you own roughly 1/10th an ounce of gold per share you own in the iShares trust. And the best part is, you can trade these easily from your regular stock trading account. This means if you buy and hold you can take advantage of long term capital gains rules rather than taking the sale of a gold bar as a fully taxed gain, as you would do if you owned gold bars.

Some people say they want to be able to hold the gold, but those same people don’t realize that when they buy stock in a company they have nothing to hold, so why not do the same with buying gold. The ETF IAU will allow you to own a piece of a precious metal that has historically held it’s value. And with the spread of wealth around the world increasing, demand for gold can only go up (or so we think).

Buying gold now during this volatile time period may be risky, but if you hold long enough, we imagine that owning an ETF like IAU will prove to be very valuable, and easy to trade.