Gold Mining Stock Made Simple

In a world where the welfare state becomes increasingly obsolete

, investing in anything as long as it ensures good returns is a "must". Most of us prefer starting up a bank account or in the best case scenario buying government bonds. For the boldest though, the stock exchange is the real answer. and investing in the Precious King of Metals as some call it, has never been more appealing. The price of gold has reached record highs and it is believed to stay there if not continue its upward march.

The tricky question is what kind of investment vehicle to pick. And there are plenty of choices: jewelry, coins, buying gold bullion , gold mining stock, ETFs, mutual finds dealing in precious metals and the list goes on. Investing in physical gold sits very well with some who like to be able to see it and enjoy it on a regular basis. The trouble with this method is that physical gold is hard to store and to maintain. It would be fair to notice though, that jewelry and coins are easily convertible into cash, because they are very liquid assets.

This practice has its advantages and disadvantages. The upside is that you can cash in a lot more money than if you had invested in physical gold. The shares are valued based on the future performance of the company and if the general perception is that it will do well, than the share price will go through the roof. Another advantage is that, due to the fact that shares pick up the smallest movements in price changes investors can sell and see cash faster than they would have otherwise done.

There are however, some disadvantages to this type of investment. Firstly, you can never tell how much gold a mine has. You can guess at it based on good scientific methods but you can never fully and precisely estimate it. The usual technique of evaluating the quantity of gold in an area is to take samples from more than one spot and then measure the gold in the rock. The results are then extrapolated to the entire surface. Unfortunately however, the very people who are in charge with prospecting for gold are the very people who need to convince investors to invest. So their version of the story might be a tad biased.

There are other factors at play when it comes to evaluating the financial health of a gold mining company: customers' sentiment towards environmental issues is one of them. Two of the most usual techniques of extracting gold are by mercury or cyanide, both extremely harmful for the environment. Add to that the fact that the European Union is contemplating a full ban on cyanide-based methods and you have a real threat for the mining companies.

by: Jack Wogan.

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