GOLD SHARES (STOCKS)
Gold shares, also called stocks are actual shares of the gold mining company so whatever proportion of the shares of a company that you own equates to how much of the actual company you own. When the gold price rises (or falls) the value of each share goes up or down, other factors affecting the share price are quantity of gold that the company has in the ground, which is an estimate based on drilled samples and how many grams per tonne they contain and how long the seams of gold are, also, how good the management are, whether the company is actually producing or still only exploring, whether they have hedged the price of their gold and factors such as the political situation in the country that they are based.
Gold shares can be volatile and the price can move quickly on news stories when they are released.
Shares that are more risky can be relatively cheap, often classed as penny shares, however just because they are cheap does not make them good value, the attraction is that ‘penny shares’ have the potential to increase several times over they appear to have less downside because people assume that if a share is 10p for example it could go up to be worth several pounds, however it could easily go down to 1p losing the shareholder 90% of his or her investment, this is why care should be taken when selecting gold shares, the company fundamentals should be studied and it pays to read up as much as you can on them from whatever sources you can.
Many commentators on the stock market consider that gold stocks are undervalued compared to the current high price of gold. Good quality stocks can be found with research. It is easy however to get attached to particular gold stocks which I myself have done and as they were falling due to some poor results I was determined to hang on in the belief that they would go back up. It is often better to sell at a small loss than hang on, you can always go back in and buy again at a lower price if the fundamentals have improved.
I continue to favour junior gold mining companies as the attraction of big returns compared with higher priced stocks is too tempting to ignore. Falls in the stock market as a whole will bring down gold stocks, gold stocks that are hardly moved by a big fall in the market can be a good bet as it tends to mean that there is still good value in the company.
I trade stocks via spread bets and I also own the actual shares of some gold companies. I own physical gold as coins and have become a collector which came from initially only wanting to own them for the bullion value. I also hold gold stored in bullion form via BullionVault which is a good way to keep a physical holding which can be liquidated quickly if necessary.
A question you may ask is do I buy shares in a gold exploration company which may appear cheap or and existing gold producer? Whilst we cannot give a definitive answer to this you have to look at how close the explorer is to production and how robust the finances of the company are. With an existing producer you generally know what you are getting from the financial records and statements of the company but the shares can often be more expensive reflecting the existing value of the company whereas the smaller explorers whilst being cheap can me more risky but can offer a greater potential gain if they discover recoverable quantities of gold that can be brought to production viably.
You should do your own research and take any appropriate professional advice regarding any investments that you make, this article is not intended to be investment advice or a recommendation to buy shares or make investments in any or the companies mentioned.