Gold stocks can be a profitable investment, especially while the price of physical gold is soaring. Investors can gain exposure to the gold exploration sector through individual stocks or via investment funds. In addition to the price of gold, a mining company's profits and revenues are determined by the potential for exploration activity that is under way or scheduled.
Physical gold, such as bars and coins, are often used as a means to hedge against rising inflation. According to the Forex News website, gold is deemed a safe investment that protects against inflation because its value is not affected by monetary policy the way that a country's currency, such as the U.S. dollar, is influenced. Owning physical gold is not always reasonable, however, because you need to store it in a safe place. Investors may benefit from rising gold prices by purchasing gold exploration stocks, as increasing gold prices can translate into greater corporate profits.
The opportunity for investing in gold exploration stocks is largely tied to current and future mining activities, which include finding and extracting gold that companies have the rights to. One way to examine this potential is to preview a gold exploration company's projections for mining production over coming months or years in an annual report or quarterly financial statement. Companies that embark on new and promising mining opportunities or that are expanding production plans may have the potential to generate the greatest income.
Even when the price for gold is trending higher, and although higher gold prices stand to benefit gold exploration stocks, companies can still fall short of profit expectations. According to the CNBC website, a pair of gold exploration stocks, including Agnico-Eagle and Eldorado, missed earnings forecasts for the 2010 fourth quarter. Incidentally, the earnings shortfall came amid gold prices that soared more than 400 percent over the preceding 10-year period.
Investors can gain exposure to a number of different gold exploration stocks by investing in an exchange-traded fund, or ETF, which tracks the performance of multiple underlying stocks. According to a 2011 article on the Business Insider website, not all gold exploration ETFs are the same. Some ETFs strictly invest in pure-play mining companies that produce nearly all profits from mining gold. Other funds take a broader approach and may include metal-mining companies with wider sources of revenue beyond gold. The best type is dependent in part on an investor's risk tolerance, the article states.
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