In my previous video on my top 5 gold mining stocks many of you guys asked the main differences between investing into the miners and gold directly.
So in this video, I’m going to explain WHY Gold mining stocks can offer much higher returns but also with higher risks!
Without further aideu lets dive in.
Gold Mining stocks are a stock first and gold 2nd.
They are higher risk and higher reward.
Advantages of Investing into gold miners?
Gold Miners are a leveraged way to invest into Gold, so should the price of gold rise by say a factor of 2 the miner could easily rise by a factor of 8 or more!!
With an average gold to miner ratio of 1 to 4.
Which can make them incredible for investor’s for example looking at the share price of a popular mining stock Kin Ross we can see that it was a 10 Bagger between the years of 2001 and 2008.
That mean if you would have invested $10,000 you would have made $100,000 or if you invested $100,000 you would have been a millionaire!
WHY DOES THIS HAPPEN?
Well as Mentioned previously Gold Miners have an ASCI (All in sustained costs) which is generally fixed.
So lets say their ASCI is $900 and Gold price is only at $1200 per ounce then they will only have a small profit margin of $200.
However, should the GOLD price rise to over $2000 per ounce where it is right now. These miners profit per ounce has just increased to over $1000 per ounce!!
Thus the companies cash flow’s explode by over 5 times in a short period of time.
RISKS OF INVESTING INTO GOLD MINERS?
However, not everything that glistens is gold, compared to gold the miners often crash much harder and can even go to zero if the miner goes bankrupt or they just run out of gold in their specific area.
Gold miners are also susceptible to business problems such as poor management, workers strikes, Rising mining costs, financing and many other business risks.
Gold miners are not stocks you want to hold onto forever, they are stock you want to catch on an upcycle.
Final Thoughts:
Overall, Don’t confuse investing into Gold with investing into gold miners.
Gold is a safe hedge against inflation and acts as a ballast for your portfolio.
Whereas Gold Miners are much more volatile with high risk and high reward.
WHICH DO I INVEST IN?
I have approximately 5% of my portfolio in Gold, using the I shares Physical Gold ETC
And then I have a small pot of money which I invest into a few diversified gold miners as more of a speculative play…as one 10 bagger could set you for life!
If you interested in the Gold Miners I’m invested into, check out my previous top 5 video below.
