The most significant factor, when it comes to investing, is the investor’s confidence or uncertainty in the investment. With the aforementioned declines occurring, investors’ faith in stocks, oil, and the dollar are quite shaken. Because of the physical nature of Gold, many investors turn to the precious metal as a safe investment and now, with gold up these recent months, savvy investors are considering gold mining stocks as a worthwhile investment.
When Gold Prices Surge, So Do Gold Mining Stocks
As the gold prices increase, it make sense that the price of gold mining stocks would increase as well. With a continued uptick in price, gold looks like a smart place to put your money, yet taking on an investment in gold mining stocks could mean more return. Why?
Exponential Increase
Mining operations maintain notoriously high fixed operating costs. As gold prices go up or down, the cost of running a mine does change, which means as gold prices increase steadily, gold mining profits increase exponentially. For example: let’s say Gold is selling at $1100 per ounce. It costs the mine $1000 to produce that once, yielding a profit of $100. Now let’s say the price of gold doubles, selling for $2200 per ounce. The cost of mining that ounce remains at $1000, but now the profit to the mine has jumped to $1200.
The flip side is also true, that with such high fixed cost, a slight downturn in gold prices could spell detriment for gold mining stocks. To a gutsy investor the potential for high reward has many a portfolio diversifying into this asset class. For those more risk averse, yet looking for a good return, gold investing becomes the place to expand the portfolio.
Diminishing Supply
The World Gold Council continues to report a decline of the global gold production. Stating a loss of 4% year over year, puts gold mines in danger of shutdown if gold prices stay below $1200 per ounce. They can’t sustain the production for small earnings. The result: a limited supply of the precious metal in the market which hints at continual rises in the for the yellow metal.
Demand for Gold in Asian Markets
Furthermore, the increasing demand for gold in China and India has gold experts predicting a steady interest in the metal. As we watch interest rates and currency inflation rise, the growing middle class in both countries turn to gold as a safe haven, much like Western investors. According to reports, China and India make up almost half of the market demand for gold, meaning prices for the precious metals and gold mining stocks are likely to rise for several more months.
Landmark Capital Can Help You Navigate The Current Landscape.
With the rise of overall market demand for gold and gold mining stocks coupled with the global decrease in financial stability, we’re not suggesting it’s time to panic, but rather a time to consider an investment gold. The market indicators point to a rise in prices for, at very least, the next few months. Our representatives at Landmark Capital can walk you through the pros and cons of the gold market, and answering any question you have regarding your investments in the precious metals. Contact us today.