Gold stocks are complicated investments, and like any other investment, they're subject to good and bad luck and to the influence of their competitors and their own management. At the same time, their value is heavily dependent on the price of gold. With this in mind, the buy-sell-hold decision for these types of stocks is frequently tied to your sense of what the price of gold will do.
Types of Gold Stocks
Gold stocks come in three broad classes. One type of gold stock is a fund or other vehicle that directly tracks gold, such as an exchange-traded fund whose shares represent a small piece of a large physical pool of gold. These stocks typically track the price of gold very closely. Large gold mining companies also frequently trade at prices that track the price of gold. They, however, also have business concerns that can affect their stock price above and beyond what gold does. The most speculative gold stock play is generally in the junior mining sector. These are usually small companies that are still exploring for gold. While increases in gold prices can drive their value, the luck (or lack of it) they encounter in their exploration activities can have an even larger impact.
Buying Gold Stocks
Gold generally is purchased as a safe-harbor asset in uncertain economic times or when inflation threatens to return to the market. Barring speculative strategies, you might choose to buy gold stocks if you see indications of a drop in the value of the U.S. dollar. Another reason to buy gold stocks could be indications that the economy is going into a recession. When you're purchasing shares in junior miners, though, a tip that indicates that the company is close to major discovery could make that company worth buying even if gold itself isn't necessarily going up.
Selling Gold Stocks
When the economy starts to recover, gold prices frequently suffer. As investors get more optimistic, they feel less need to put their money in a safe place like gold and frequently sell their holdings to invest in other vehicles. This can also happen when inflation fears subside. With junior miners, you may choose to sell after a price spike that you can't explain or before bad news affects the price, if you can get ahead of it.
Holding Gold Stocks
Once you're in gold stocks, one strategy can be to hold them until things change in the economy. If you hold during bad economic times, the hope is that the gold stocks will hold their values or continue to increase until the economy starts to shift, so you may not find a reason to sell. If there is no news to drive the price in either direction, you may also choose to hold any stock you own in a junior gold mining outfit until something happens.
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.