In an earlier article, we discussed eight different ways investors could participate in the gold market. Here we're going to talk about one of the easiest ways for investors to enter the market: gold mutual funds.
Gold Mutual Funds and Stock Market Risks
There are two kinds of risks associated with common stocks: market risk and individual stock risk. Market risk is on a macroeconomic scale. For example, interest rates could rise rapidly and the entire stock market takes a downturn. This kind of risk can also occur at an industry level. In the case of gold, the laws pertaining to the mining of land or the market price of gold itself can affect the entire industry. As the price of gold rises, all gold mining companies should experience an increase in their stock price.
Individual Stock Risk
There is a second risk that investors need to be concerned with: individual company risk. This is the risk that a company will underperform due to poor management decisions, lawsuits, or other events that can materially impact the earnings of that company. Since mutual funds are a collection of stocks, they allow the investor to instantly create a portfolio without purchasing a diverse set of securities. Holding a portfolio of stocks allows the investor to mitigate the risk associated with an individual company.
Investors recognize the benefits associated with mutual funds, and their growing popularity has led to a wide range of specialty offerings such as gold mutual funds. These are portfolios of precious metal mining companies that have operations that include gold mining.
World Gold Production
The first gold exchange traded fund was Gold Bullion Securities (GOLD), which appeared in March 2003 on the Australian Stock Exchange. Today, the investor can find gold exchange traded funds, also known as GETFs, on many of the major stock exchanges. This includes the London Stock Exchange as well as the NYSE EuroNext.
Precious Metals Funds
Gold mutual funds can oftentimes be found when researching specialty offerings, and are typically included with precious metal funds. The investor is offered additional diversification, and insulation from single metal price fluctuations, when gold is included with other precious metals such as silver or platinum.
Taking a closer look at this sector and the ratings of precious metals mutual funds, the top performing funds in this class over the past year (in terms of total return, and as of November 2020) include:
Fund Name | Ticker | 1 Yr. Return |
ProFunds Precious Metals UltraSector Inv | PMPIX | 46.2% |
OCM Gold Investor | OCMGX | 44.1% |
Rydex Precious Metals Fund | RYPMX | 35.5% |
VanEck International Investors Gold | INIVX | 44.1% |
U.S. Global Investors World Precious Minerals | EKWAX | 40.2% |
Keep in mind that past performance holds no promise of future returns. It's important to conduct thorough research before investing. Anyone thinking about investing in gold, or any other mutual fund, should take a quick look at our article: Investing in Mutual Funds.
Additional Terms
- Commodity mutual funds offer an interesting, and potentially rewarding, way to diversify an investment portfolio beyond stocks and bonds. Since the prices of commodities tend to rise in step with inflation, they can be used as a hedge against inflation. This movement also runs counter to stock prices, which is a feature that also makes them attractive to investors.
Moneyzine EditorSeptember 19th, 2023 - Real estate mutual funds provide investors with one of the easiest ways to get started in this market. These specialized funds oftentimes allow investors to participate with as little as $1,000. Real estate funds also offer the investor the advantages of a mutual fund, which includes a portfolio with lower overall risk, as well as professional management of the investments.Moneyzine EditorSeptember 21st, 2023
