Gold Stocks - Gold Mining Shares

Gold stocks are shares in gold mining companies. Gold mining shares are another way to invest in gold, without having to take actual physical delivery of it. This type of investment carries risks, as there is no guarantee that mining shares will go up simply because the price of gold rises.Their performance depends on gold ore availability, financial performance of companies mining and prospecting, and many other factors that must be taken into account.

They tend to be correlated to gold prices but more volatile, and subject to many factors independent of bullion market. If the gold price rises, profits of a gold mining company should rise and as a result the share price should rise. However, there are many factors to consider as it and it is not always the case that a share price will rise when the gold price increases. Such factors are: the mine and management performance (production process, cost structure, ground reserves); the conduct of trade unions; the mining company's gold hedging position; political, economic, environmental  and nationalization considerations. Gold mines are valued on the basis of their expected cashflows through the life of the mine, and these depend on the reserves, the production costs and the anticipated value of the gold to be extracted.  A mine's exact reserves are never known.  Also they may encounter unforeseen be unforeseen engineering problems in extracting, that can increase the production costs. Costs of the mine are in a currency other than dollars, and as such exchange rate changes can greatly affect profitability. Buying and selling shares incur transaction costs of 1-1.5% each way. In general, gold shares are viewed as very volatile and high risk.

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