For investors who are familiar with the stock market, buying stocks of gold mining companies is a convenient way of gaining access to the gold market.
While generally, the price of gold stock correlates with the price of gold, other factors such as the company's operating strengths, management's competence and future growth prospects also affects the stock price. The price of gold stocks can also suffer due to events such as strikes by the mine workers.
Buying shares of gold producers is another popular way of participating in the gold market.
An important detail to take note of when investing in gold stocks is how much of the company's future production has been hedged. A gold producer with a substantial proportion of future production hedged will not benefit as much as an unhedged producer if gold price goes up signifcantly. Conversely, should the price of gold drops sharply, the unhedged producer will suffer a greater drop in earnings (and possibly even losses) when compared to the company whose production is substantially hedged. While unhedged gold stocks offers greater leverage, hedged gold producers offers more stability.
Besides capital gains, ownership of gold stocks also let the investor earn a dividend. In the long run, the dividend will also rise along with the price of gold.
Major Gold Mining Companies
- Newmont Mining Corp. (NYSE:NEM)
- Gold Fields Limited (NYSE:GFI)
- AngloGold Ashanti (NYSE:AU)
- Randgold Resources Ltd.
- Harmony Gold Mining Co. Ltd.
- Goldcorp Inc.
- Kinross Gold Corporation
How to Start Trading Gold Mining Stocks
To buy or sell gold mining stocks, you need to open a trading account with an online stock brokerage such as TD Ameritrade. We recommend TD Ameritrade as they provide a virtual trading platform where beginners can try out stock trading in real market conditions without using real money.