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A gold stock investment is more central now that ever. In fact, it should be a staple of everyone’s portfolio. This isn’t just the token tiny percentage placed in your account to make things appear “balanced” either. Gold stocks, along with rare earth metals, will be the best performers of this decade. The following are some of my best mining share market tips.
Gold Stock Investment For Profit?
In the past, having a gold stock investment of sorts was seen as defensive in nature. It was a way to “protect” assets. It usually involved a financial planner advocating 5% or so of your portfolio to precious metal as a default way of diversifying. Whether or not that was ever even a good idea at all, as a default rule, the fact of the matter is that we are not currently operating under normal circumstances.
While there’s no doubt some money has been made, the reality is that the stock markets have been about flat if you take a snapshot across the first decade of this new millennium. By contrast, gold has steadily risen for ten years in a row. The simple fact that the one commodity that functions as real money pushes higher year after year for a decade is alone a sign that things are not well behind the scenes. While we’ll look closer at that in a moment, the indisputable fact is that folks reasonably well represented by some sort of gold stock investment turned profits that put the broad markets to shame.
Rather than point fingers and shuffle blame, let’s just look at some facts that are critical to your decision to be well-positioned in a gold stock investment. Again, I’m not suggesting one thing caused another, but it’s sufficient to see the correlation and know we’re in serious trouble.
President Nixon closed the gold window in 1971, effectively removing the gold backing for paper money. Since then, the American government, and other nations around the world, has been slaying the forests to print paper money at an unprecedented level. Since that time, in the era of easy money created out of thin air, we’ve seen a stock market meltdown in 1987, hedge fund disasters in 1998, major companies collapse, technology company collapses, housing collapses, and so on. In short, the house of cards is crumbling. Precious metals are inherently valuable precisely because they cannot be manufactured like the paper money that has been central to our worldwide financial problems.
Gold Stock Investment Preferences
My favorite gold stock investment, hands down, is a well-selected basket of Canadian resource companies. Canada is home to some of the greatest deposits of natural resources on the planet. But there is action all over the globe. And even foreign companies seek to get listed on the Toronto Exchange, as it is a user-friendly trading environment that is friendly to miners. Apart from mining companies operating in, or listed on the exchanges of, Canada, there is a thriving economy that employs about 1,000,000 people.
Gold Stock Investment v. Gold Stock Speculation
It’s important to pause and point out the key differences between investing in gold stocks and speculating with them. Note, too, that speculation is far from gambling. Gold stocks reflects companies involved in one of the three main areas of mining, although any given company could conceivably be involved in all three. The first realm is the group that I like the best. These are the explorations companies.
The explorers are often referred to as “burning matches,” and for good reason. They burn through cash like there’s no tomorrow. They produce next to nothing. All there is to drive them on is the hope, wish, and dream of scoring the next big story in the mining industry. Where talented management abounds, and sufficient cash flow persists, these are the companies that can go on to return mind-boggling gains.
Gold Stock Investment Decisions Revolving Around Size
It’s important to keep in mind that gold stock investment considerations factor in any number of variables. One of the most important of them is the size of the company. I like to keep open all options, whether dealing with actual Canadian companies exploring on their home turf, or Canadian companies that have ventured off to the far flung corners of the Earth. Foreign companies trading on the Toronto Exchange merely open up additional options. The key, above all, is strategic buying.
The smallest of the explorers offer some extreme dynamics. These companies are intrinsically volatile. The tiny ones are even moreso. The market caps are so small that a reasonable amount of buying pressure or selling pressure can cause the price to swing radically. There are other times when even a modest degree of “bad news” or a hiccup along the way causes the stock to fall out of favor. When you are able to grab a good company at a discount, you’re poised for exponential returns. If a stock loses half of its value, which is easily possible, you’ll double just by the time it gets back to where it was.
At the end of the day, the explorers are the ones who find the stellar properties and make highly profitable producers possible. The well-known companies may get the fame and the glory, but they really did next to nothing to bring the process to life. The upshot for you and I is that the explorers get paid well to turn over economically attractive mining claims. These little companies can either sell their position for profit, or else enter into some form of joint venture. Every once in a while, you might find a company that has the financial wherewithal to develop their own mine. They might advance the project only to sell later, or find a way to produce. But, as a general rule, the different aspects of the mining cycle are quite distinct.
It’s important to really put into perspective the types of returns that are possible with a solid gold stock investment. Some people may take on a junior miner only to have a heart attack when the stock falls by 20 or 30%. The simple fact of the matter is that you have to give these stocks some breathing room along the way. When a company that sells for 15 cents goes to just $1.50, you’ve already hit 1,000%! What happens when that stock goes to just $15. Some investors think $15 stocks are start-ups that are “risky,” so $15 is nothing. But it can mean 10,000% to you. That’s 100-fold on you money, which turns a meager $1,000 investment into $100,000. Just remember, a good junior miner will “zig-zag” its way to the top. It is never a straight line. As long as the “zig” is bigger than the “zag,” all is well. Think of it as the gold stock investment staying above its moving average.
