Gold Stocks

Gold stocks are an excellent way to invest in gold without physically owning gold itself. Shares of gold stocks are usually purchased in gold mining companies.

If you are going to invest in gold mining stocks you can research these stocks in one of two ways, either using fundamantal analysis or technical analysis. One of the most efficient ways to use fundamental analysis is to analyze a gold mining company’s production cost. With all other factors being equal the company with the lower overall production cost may represent the greatest value as the lower the production costs the higher the level of profit. This means that if the production costs stay fixed as the price of gold rises then the value of the shares should increase with the company’s profits.

If you are more interested in using technical analysis to research gold stock you have a wide variety of systems and strategies at your disposal. This means you can use a wide variety of indicators such as moving averages, Bollinger bands, MACD, etc. to aid in your analysis.

Although the gold market can be very volatile the price of gold can trend very strongly. For this reason gains in gold stocks can actually be greater than the percentage gains in gold prices themselves. This makes gold stock an excellent vehicle for investment as well as speculation. As an example of this Goldcorp, Inc. was trading below the $15 level in late 2008 while gold was trading slightly below the $700 level. In early 2011 Goldcorp was trading at the $50 level while gold was trading at the $1,450 level.

If we more closely analyze our example above we can see which would have made the better investment. With $15,000 you could have purchased 1,000 shares of Goldcorp. Inc. stock at $15 per share. This would have appreciated to a value of 1,000 shares x $50 per share = $50,000. With that same $15,000 you could have purchased ~ 21 ounces of gold at $700 per ounce. This would have appreciated to 21 ounces x $1,450 per ounce = $30,450.

As you can see there can be clear advantages to investing in gold stocks. Our example above illustrates that we can obtain an increased return on investment over and above that of investment in gold itself.

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