| Most people who go into gold do so by buying gold | | | | mine locations. But if they find a mine today it will, |
| stock. | | | | because of global ecological regulations, at least five |
| This is not really buying gold, rather, it is buying | | | | to six years before that new gold is ready to be |
| shares in a company that may be dealing in gold. It | | | | delivered to the market. |
| could be a gold mining company for example, and the | | | | The large gold mining companies look for small start |
| people who buy stock in a gold mining company are | | | | up companies that have found gold... since the gold |
| doing so based on the idea that as the value of gold | | | | the small company has found is ready for delivery |
| increases, the value of the stock will increase. It | | | | now (or at least, soon) and that gold would add to |
| may... or it may not. | | | | the total available gold the large company would have |
| You see, when a person buys shares in a company, | | | | for delivery. The large company will then attempt to |
| the price they pay is in direct proportion to the | | | | take over the small company... usually for stock and |
| earnings of that company, traditionally, the higher the | | | | sometimes cash as well. |
| earnings, the higher the share price. Whether the | | | | The stock price of the company being acquired |
| asset they deal in is gold... or widgets... really doesn't | | | | would most likely go up and in some cases, go up |
| make a difference, it's the old "price/earnings ratio" | | | | substantially. |
| that comes into play when pricing a stock. | | | | So there's an example of an exception on how |
| So a gold company, or for that matter, any | | | | buying gold mining stock could be worthwhile... but |
| company, can be dealing in a product or service that | | | | again, that kind of luck has nothing to do with the |
| is in high demand and moving huge volume of that | | | | basic premise as to why most people are looking at |
| product or service... but does that mean after all | | | | gold today as an investment, the anticipation of the |
| expenses are covered that they have earned a | | | | price of gold increasing. |
| profit? | | | | Buying gold stock options fall into the same category |
| And, after paying all expenses, including taxes, does | | | | since the value of the option is tied back to the value |
| the fact that the product or service is in high demand | | | | of the stock and if you buy an at the money call |
| really mean anything? | | | | option under the premise that the stock will go up, |
| Of course not, when buying any stock the key to | | | | for example, remember that part of the premium |
| price value is the amount of earnings achieved, and if | | | | you pay for that option factors in a cost for time, |
| the earnings are down, the stock price will reflect | | | | which diminishes as every day passes. |
| that point... so, investing in gold mining stocks or even | | | | Using a gold stock option for a small company in |
| in options on gold mining stocks has very little to do | | | | anticipation of a takeover has some potential. Don't |
| with the price of gold. | | | | forget the intrinsic value of the option ties back to |
| There are exceptions... like in anything else... | | | | the price of the underlying asset, the stock in that |
| Let me give you an example of an exception. A | | | | small company. It is then the price of the stock that |
| major gold mining company with thousands of | | | | will cause the option to move and again, you have a |
| customers needs to acquire more gold than they | | | | diminishing asset, the time value, to overcome as |
| have in reserves or in their mines. Demand is high, | | | | well. |
| customers want more and want it faster than the | | | | Oh, one more thing... |
| large mining company can produce. If the mining | | | | There are companies selling stock on the regulated |
| company can't deliver, the customers will start looking | | | | exchanges that have the name "Gold" "Gold Mining" |
| elsewhere. | | | | or "Mining" in their names that don't have gold mines. |
| There have been no major gold finds in the last 25 | | | | They may be exploring, they may have had a mine |
| years, which means that the only gold a major (or | | | | that is no longer producing, there could be a million |
| for that matter, any) gold mining company can | | | | and one situations that you don't expect. |
| deliver is what they have available. But like any | | | | Be certain that if you buy a stock, any stock, or an |
| business, the seller wants to keep the buyer happy | | | | option on such a stock that you know what it is the |
| and does not want that buyer to stray. | | | | company actually does and look at their annual report |
| So what's a gold mining company to do? The large | | | | to see how well they are doing. |
| gold mining companies are always exploring for more | | | | |