Lots of investors have swarmed to the commodities market and purchased gold at record levels over the last few years. This sharp increase in demand has led to gold prices never before seen in the markets.
Many people would like to invest in gold but are not quite financially able to invest the amounts necessary to secure a significant stake. Thankfully, there are other options.
Stock of Mining companies
Many mining companies are still fervently searching and digging for more gold. Many of the larger mining organizations offer stock in their company, although it is not quite as accessible as the typical stock market. However, the stocks in mining companies are a great way for some investors to get into gold trading.
Some of the stocks sell for as little as $5 per share. Usually, any good news revolving around the trading price of gold will have a positive impact on these smaller stocks.
Just as options can be bought and sold on typical large corporation stocks, the same is true for the larger mining operations. Options give traders a chance to short the stock or go long in order to match the current market demands.
A decided advantage of using options is the ability to control bigger blocks of shares with much smaller amounts of money tied up. Of course time can play the devil with this strategy if a buy or sell is handled at the wrong moment.
Choosing a Good Company
Choosing a proper mining company that will have a stock with profitable rewards requires a little investigation. There are a few criteria to make sure the company will have a rewarding future and a likely rewarding stock.
- Mine life – The life of a gold mine is determined by comparing current production against the estimated reserves. The top mining organizations claim that most of their mines have a life of at least 7 years. A longer mine life indicates a longer future to produce gold.
- Exploration – Since gold mines have a short life and gold is so rare, a solid company needs to have a strategic exploration plan in place. Sitting idly by and hoping that gold will “pop up” on the map is not a good plan.
- Company financial standing – Any company involved with exploring and mining at an extensive rate is going to accrue some debt. The key to staying profitable is monitoring cash flow and keeping the debt at a minimum. The debt to equity ratio represents how well the company is minding its finances.
- Politics – All countries have their own political tendencies. Any mine located within a country that offers any signs of instability will cause a sharp decline in the stock price. It is therefore wise to consider corporations who have headquarters and mines located in relatively safe environments.
Other items such as past performance and the overall success of the management team also play a large part in the success of the mining company. This short list is offered as a guideline to help investors investigate each potential stock before acquisition.