Gold Stocks

If you are interested in gold as an investment for profit, and not just as a safe haven, you can buy stocks in gold mining companies. It is wise to collect a “basket” of mining stocks, rather than investing in just one or two. You can buy gold mining stocks, but they may not track the metal’s price faithfully. Large producers can be dragged down by falling stock markets, while small producers may find it hard to raise capital in a credit crunch. Individual gold shares would be regarded as more volatile and risky. There is a higher risk-reward scenario and thus gold shares are regarded as more speculative. However, the added risk can be compensated for by the leverage which can result in higher returns. Such higher returns would be expected from mid and large-capitalisation un-hedged senior gold mining companies with proven reserves and strong earnings which have strong balance sheets and growth in resources and production and effective company management.

Plainly, an investment in gold mining shares is not the equivalent of owning gold for investment. Additional layers of risk are heaped upon gold in a stock investment, and they require careful analysis. Sometimes, undertaking those risks pays off handsomely in double-digit excess returns, but from what we can see over the past three years, that’s more the exception than the rule.