If you’ve been wondering how to buy top gold stocks, then look no further and continue reading

At TSI Network, we recommend that you limit your gold investing to high-quality gold-mining stocks. That’s the initial tip to know while considering how to buy gold stocks. Gold-mining stocks at least have the potential to generate income, unlike bullion. Bullion and coins come with a continuing cash drain for management, insurance, storage and so on.

Investing in the stocks of gold-mining companies lets you benefit from increases in the price of gold, and you also give yourself the potential for capital gains and income. You also save on the higher brokerage fees and commissions associated with direct investment in other types of commodities.

The best gold stocks will generate positive cash flow even with low gold prices

Most gold firms’ shares will continue to be heavily influenced by the direction of gold prices. Meanwhile, though, the best gold stocks will generate positive cash flow even with low gold prices—and also offer rising production outlooks.

Some of the most highly promoted gold mining stocks are penny stocks which have yet to produce an ounce of gold. Many must still add to their reserves, invest in mine feasibility studies, and raise a lot of money before they go into production. The prospects for most of these penny-mine properties, even though they may be in areas with production from existing mines nearby, are far from certain.

However, the best gold stocks have strong reserves, low production costs and are already producing gold. They also have a range of development projects, but their strong base of production cuts the risk of relying on new developments alone.

Furthermore, we look for well-financed gold stocks with no immediate need to sell shares at low prices, since that would dilute existing investors’ interests. The best junior golds have a major partner who has agreed to pay for the drilling or other exploration or development, in exchange for an interest in the property.

Remember, the best gold stocks all have strong balance sheets and low debt.

How to buy gold stocks: a practical way to hold gold bars and coins in your RRSP

Questrade, a Canadian online discount broker, introduced its “Gold RSP” in January 2006. A decade later, this investment still meets all of the Canada Revenue Agency’s specifications, and makes it practical to hold coins or bullion bars in your RRSP.

To access the Questrade Gold RSP, you have to open a Questrade account. You can open an account with as little as $1,000. Gold purchases or sales cost $19.95 each. Kitco Metals buys the gold from the Royal Canadian Mint, and the gold is stored at the Mint, as the Canada Revenue Agency requires. Bid and ask prices are quoted on the Questrade web site, so you can buy and sell gold bars or coins if you want to bet on gold price fluctuations.

Questrade, on behalf of the Royal Canadian Mint, charges storage fees of $0.10 per ounce of gold per month. There is no minimum number of ounces you need to hold, and no minimum storage charge. So, for example, you could buy just one ounce of gold at the current market price (plus the $19.95 commission) and pay only $0.10 a month, or $1.20 a year, in storage fees.

Two gold investing mistakes to avoid

The first of the gold investing mistakes you should avoid is gold futures: Rising gold prices can make trading gold futures look more attractive. However, you can only profit in future-linked deals by out-guessing other futures traders by a wide enough margin to cover commissions and other trading costs. When you dabble in commodity futures, you are betting against professionals who make a full-time occupation of studying these markets, who have better access to information than you do, and pay much lower commissions.

The second gold investing mistake is structured investments: Brokers sell various structured products for investing in gold and other commodities, while supposedly limiting risk. Most participants will ultimately lose money in these investments, as well. Or they will make a poor return in relation to their risk.

The difference between structured products and gold futures trades is that the losses won’t happen so quickly. However, more of the money you lose will flow into brokers’ fees and commissions, while you’ll typically lose less on the commodity investments themselves.

Do you currently own gold stocks in your portfolio? What type of gold stocks are they, and how have they performed for you? Share your experience with us in the comments.