Why you should consider investing in gold mining stocks

Gold Investing Strategies

Why you should consider investing in gold mining stocks

Previous

Contents

Next

As nice as it is to have physical gold, a stack of Krugerrands or pile of Gold Eagles, you should consider putting some of your gold-investing money into gold mining stocks.

Investing in gold mining stocks is riskier than just purchasing physical gold. Besides the potential losses from having the value of gold dropping, you also need to be concerned about the management and profitability of the mining company.

However, you also gain a bit of leverage if the price of gold continues to rise.

Let’s say that it costs a gold mining company $500 in expenses for each ounce of gold that they pull out of the ground. The cost to continue doing that stays fairly stable, other than increases due to inflation. So, if gold is selling for $1000 an ounce, they make a profit of $500 for every ounce they uncover.

Now, let’s say that the price of gold moves up to $1500 an ounce. The company’s expenses per ounce will still be around $500, but now they have a profit of $1000 for every ounce they mine. That’s a 100 percent increase in profits. That could easily cause the price of their stock to increase 100 percent.

If you had invested in physical gold instead, and the price of gold increased from $1000 to $1500, you’d have received a 50 percent return on your investment – a nice profit, but not as nice as 100 percent.

Unfortunately, you can suffer the bad side of this leverage if the price of gold decreases, especially to the point where it’s no longer profitable for the company to pull an ounce of gold out of the ground.

Some investors like to invest in small gold mining companies. Hoping that the company … well, “strikes gold.” This is a very risky strategy. If you pick right, you can get rich, but guess wrong, and you could lose everything you put into that company.

It’s generally safer to purchase shares in the larger gold mining companies. They have an experienced management team, a longer history of exploration (which gives you the ability to gauge the risk better), and the equipment and employees to quickly start operating a mine.

However, you do want to consider adding in a few junior miner stocks. Even the best gold mining companies are at risk of decreased yields from their current mines, and lost money on exploration. Spread your investment money across several different companies, and several different types of gold mining companies.

If you’re looking to invest in gold, there are many different forms of investments you can make. Before you put any of your funds at risk, make sure that you are considering your future goals, and which form of gold is the best one to let you reach them.

You can talk about... Why you should consider investing in gold mining stocks

Tags: • inflation • profitability • gold mining • gold eagles • physical gold • price of gold • mining stocks • invest in gold • investing in gold • gold mining stocks • gold mining companies •

• How far will the price of gold drop? (gold market)
• UAE financial company offers gold investment fund product (gold investment)
• Which gold coins are best for investing? (physical gold)
• Understanding the Purity of Gold (gold purity)
• More related articles for Understanding the Purity of Gold

Previous

Contents

Next

• <a href="http://article-library.goldinvestingstrategies.com">Gold Investing Strategies</a>
• <a href="http://article-library.goldinvestingstrategies.com/gold_stocks">Why you should consider investing in gold mining stocks (gold stocks); Gold Investing Strategies </a>

Privacy & DMCA Policy -- Sitemap
gold stocks Why you should consider investing in gold mining stocks