Buying Gold Stocks:
When buying gold stocks, make sure you understand that there are many so-called “gold stocks” that pretend to be gold stocks. They are actually dreamers or scammers who have not quite got to the gold yet.
Is the gold company producing real gold? Are they also producing other metals at the same time? The latter does not apply to all operations, but if they are not producing anything they are not quite in business.
Gold stocks do not necessarily go up to the price of gold. Let’s say that gold goes from $1000 to $1800 per ounce over a couple of months. The companies that are truly producing will benefit greatly. Those prospective companies are likely to bounce up also – but usually on a false buzz. Rarely is it because they will actually bring in more money.
The Greatly Enhanced Risks of Gold Penny Stocks:
“A fool and his money are soon parted.”
That phrase applied to nearly every gold penny stock. If you buy them, you are almost certain to lose. Don’t believe any report that shows a huge amount of gold in an area that they are about to start mining. Believe only what they have actually brought out of the ground for a year or so.
Most of these tiny companies cannot even begin to actually start production. They use the public company vehicle to hunt here and there for gold. If they actually hit it big, do you really think they are going to share that gold with investors? Think of most of these penny stocks as one man operations that hire a few independent contractors. Let’s say they hit it big in “Area 51.” That’s maybe one of 75 gold claims they have access to and are checking. They just don’t mention it. They let that lease “expire” in a few months, possibly buying that lease themselves.
I don’t trust most of the GOLD penny stock operators. I have heard about fraud where they find gold and that gold ends up going to a privately-owned entity. The expenses of such an operation go to the public company and are put on investors.
Buying Gold Funds – both Mutual Funds or Exchange Traded Funds:
This is the easiest and probably the safest way to buy gold stocks. They generally move with the value of gold. They generally fall before the price of gold actually falls.
Exchange Traded Notes for gold companies are not the same as gold equity stocks. It is a debt instrument. It’s more like a utility and less like a gold stock.
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