Investing in Gold Mining Companies – What You Must Know First
Many people decide to invest in gold through buying up stock in companies that mine gold.
This can make money, but you need to know that when you do this, your success depends on a lot of other things besides the market price of gold going up. It depends on the ability of the company management to produce gold at a competitive price. It also depends on their capacity to get gold out of the land they own, and to acquire additional properties that turn out to have gold.
In short, it's a lot more complicated than today's closing price of gold in London.
Gold producers are classified as major companies, intermediates, and juniors.
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These companies can be relied on to produce gold at a competitive price, and not to go out of business (unless bought out or merged, which happens). However, you may have to pay a high price for their name in the stock market. The Toronto Stock Exchange has the most gold companies listed. There are also a lot on the New York, Vancouver, Johannesburg, London and Sydney exchanges.
Some companies mine gold, but their primary business is something else, such as Coeur d'Alene, which is primarily a silver producer.
The intermediates are not as large as those giants, but they're large enough that they are operating real mining businesses. Of course, over the course of time, depending on management skills and the luck of the metal they own, they could grow into a major company or go out of business.
Junior mining stocks are often known as “penny stocks,” though not all penny stocks are junior mining stocks.
Some junior companies have good prospects that own some possibly land or the right to mine it, but many are little more than shell companies that promoters push up in price, then allow to drop down.
With these stocks, you are taking a huge chance. Most of them do not survive in the long run. If you're lucky, you may buy the next Newmont or Barrick while it's still small, but chances are you'll buy a lot more companies that go out of business.
Don't believe any hype or story surrounding them, including promotions by financial newsletters that specialize in gold, silver and other natural resource companies.
Again — you could get lucky. Buy a lotto ticket and you could also win the jackpot too.