JSE Gold Mining Index – JSE-GOLD (J150)
Arguably one of South Africa’s biggest industries, gold mining offers plenty by way of shares and profits. South Africa is responsible for providing up to 15% of the world’s gold, a huge industry when compared to other countries mining gold around the world. Gold was first discovered in South Africa in the 1800’s and since then it has become one of the country’s biggest exports, making a profit for mining companies as well as those who invest in them. Gold mines make up one of the biggest sectors on the JSE, allowing you the opportunity to invest your money in some of South Africa’s biggest mines.
There are many reasons why investors choose to put their money into gold. Unlike the industrial, financial and other indexes, where your money can often go towards the capital of a company (with the hope of receiving dividends), hedge fund managers and investors have a different reason why they choose to invest in this precious metal. Gold shares are often bought as an anti-inflation measure. The prices are not determined by the JSE but rather by the New York Stock Exchange. Investments into the gold industry are closely controlled by the JSE something which can benefit investors.
You can really enjoy incredible great benefits when you invest your money in the gold industry.
Gold is quite unaffected by market downfall and the ups and downs of inflation. This keeps your share valuable fairly stable and since gold is always going to be a sought after metal, your money can grow quite quickly. By now you probably know that if you have an investment portfolio, the best thing that you can do to ensure your success with your investments is to make sure that your portfolio is diverse. Because many shares can be volatile, investors purchase shares in gold and use it as an anti-inflation measure to protect the other shares in their portfolios. This is a helpful measure to have in place when your country’s economy can tend to be unstable.
Where do gold shares come from?
- Just like all of the other companies that are listed on the JSE, gold mines can list their business as well. Although the buying of these shares can be a little different, investors can put their money in gold mines such as Harmony and other well-known mining giants. Gold mines can be public companies, a requirement for trading on the JSE, which is why they list their stocks for you to invest in.
- While gold shares do rather well on the JSE, they are still not South Africa’s best-performing sector. Even though our country has many gold mines, the production of gold has dropped from 67% in the 1970’s to just 7% these days. As gold production drops and the prices of mining increases, gold shares are not what they used to be but this doesn’t mean that you should overlook investing your money in gold.
- The gold mining shares in South Africa are almost always fluctuating and this doesn’t necessarily mean that they are volatile shares to invest in. It simply means that you need to be smart before you make your investment plans and have a chat with your broker before you buy.
Buying the commodity vs. investing in shares
Unlike all of the other companies listed on the JSE, there is a worldwide debate about whether or not it is better to invest in physical gold or in gold shares. Regardless of which you purchase, history shows that you are unlikely to be doing yourself a disadvantage. Depending on what you read and who you talk to, some might say that it is far better to invest in gold shares than it is to buy the metal. Gold in South Africa is well regulated which means that not just anyone can wake up one morning and decide to buy gold without the proper licensing. One way that you can physically buy this commodity is if you invest your money in Kruger Rands but this can be risky and not to mention it will more than likely be more costly than buying shares.
But to get a better understanding of what we are talking about, here is what you need to know:
Actual gold and gold stocks have two very different purposes
The physical metal is usually considered to be an investment hedge while the stocks are more of a long-term investment, as the stocks tend to grow in value over time. This is not to say that the value of the metal won’t grow, what we are talking about here is company growth as well as the commodity growth. Then there is the fact that the actual physical metal can be less volatile than buying the stocks, as the prices of the metal are less likely to drop while the shares can experience fluctuations. When taking all of this into consideration, however, the value of the stock outweighs that of the physical metal.
Sure when you actually own the metal you have something of value, but you are not going to receive any kind of monthly profit from the metal. These dividends can grow over time and unlike your actual gold, you can watch your investment grow for as long as you have the shares. In the long run, this means that your gold shares are more profitable. What is more is that you can use the money that you receive from the company’s profits and reinvest it, allowing you to earn more next time around!
So investing in shares is better than investing in the metal itself. There are however more reasons to buy gold shares. Adding gold to your portfolio is a great investment to make when it comes to making money. When you divide your portfolio up, you should consider including shares from gold mining companies, because:
- These shares are quite easy to sell when you need cash in a hurry. While the ideal thing to do is to hold onto them for a while and let them grow, should the need to sell come up, you are almost guaranteed to find a buyer at a good price.
- As you are buying into one of the most profitable industries, there is a really good chance that your investment will keep growing, even though there may be a risk (well, there are risks with all investments).
- Patience is very important, something that is true of all stock investments. With prices subject to change and either grow or lessen over time, it is important to be patient. The value will increase and you will have bigger dividends.
Choosing the right mining companies to invest in
The general tip that most investors follow is to know the industry that they are investing in. Mining is not exactly an industry that many people are familiar with, simply because it is not exactly an industry that a majority of people are involved in, at least at a managerial level. There are a few things that you can, however, look out for when you are looking to invest in a gold mining company.
There are certain qualities that a gold mining company can have which you should consider. These qualities, or lack thereof, can help you to decide whether or not to buy shares. They include:
Do they have hands-on management?
The management of a company can be the factor that takes the company to the next level or it can be the reason that the company goes nowhere. Mining companies require a lot of effort from their management teams to make sure that the people on the ground are supported while also making sure that production runs smoothly. Good management can mean that your investment is well protected. The mining company is going to want to make money, so your investment is one that will be profitable.
Can they manage risks?
Political and environmental risks are part of the day to day operations of the mining community. You want to invest your money in a company that has the experience to deal with these kinds of upheavals when they become an issue. Gold mining comes with many risks and these risks can have an impact on the shares that you have in the company.
Does the mine have debt?
Running a mining operation can require millions if not billions of Rands. To raise this kind of capital, it is not unusual for a mine to make debt. What you will need to find out is how much debt a mine has to repay as well as if the mine is financially sound. The gold mines that are normally invested in are those without a load of debt. Mining companies will normally need ongoing capital to cover expenses. Looking the financial standing of the mining company is the best place to start.
When you have found a company that fits these three points, you should talk to a stock broker and see which shares are available. Have a look at the performance history and the data relating to the company before you purchase your shares. It is always a good idea to include a mining company in your investment portfolio as this is where you are almost always guaranteed to earn dividends.
As usual, working with a stock broker can help you make the right decisions, but mistakes can happen. Over the course of your investment history, you are bound to make one or two mistakes but this should not dissuade you from continuing to look for those shares that suit your portfolio and that can help you to make a profit.
The Johannesburg Stock Exchange offers opportunities for people to make smart investments and help their nation’s economy grow from strength to strength. Make sure that you invest in the right shares and you will always have a balance between stocks that grow and stocks that pay out monthly dividends.