If you are looking for risk that is higher, try exchange-traded notes, dent instruments which are able to track an index. You give money to a bank for a certain amount of time, and upon maturity, a return is paid to you by the bank based off of the performance of what the ENT was based on, in this case it would be the gold futures market, UBG (UBS Bloomberg CMCI Gold ETN, DGZ (DB Gold Short ETN), DZZ ( DB Gold Double Short) and DGP ( DB Gold Double Long ETN) are some of the most popular ones.
ETNs are similar to playing the futures market, without actually purchasing contracts on the Comex. Very flexible, investors are able to trade ETNs long or short, there is however no principal protection. There is a risk of loosing all your money.
Gold Mining Stocks
Gold mining stocks is a way of investing in gold that is riskier. There can be as much as 3-to-1 leverage to the upside and downside of the spot gold price with mining stocks.
What makes gold miners risky is that they trade with the equity market that is broader. When picking gold stocks, some tips to consider is to look for companies that have strong reserve and production growth. Make sure that the management is good and that the inventory is supported by either maintained consistent production or buying smaller-cap companies.
Since 2001, global gold production has been in decline, only recently has it experienced more juice, and gold reserves by big miners are kept flush by partnering or purchasing small-cap companies, which are in the stage of exploration or development.
A mistake that many investors make is to purchase small gold miners which are in the phase of exploration and have no cash flow. Choosing from these stocks is much like purchasing a lottery ticket, not many of these companies will actually strike gold and become profitable. Even less will become takeover targets.
With the high prices of gold, gold companies are able to make more one every ounce of gold produced, however their net profits are dependent on their cash costs; what it costs them for the production of an ounce of gold These are factors that vary from one company to the next and are subject to energy costs, currency issues and geopolitical factors.
At Dahlman Rose & Co, director of emerging miners; Adam Graf, uses forward curves to model 50 companies on a forward basis, “Theoretically speaking, if gold were to go up you $100 announce, what will the change in the current do based off of what the cash flow forward looking should do.”
Another factor to take into consideration when choosing gold stocks is how quickly will the company benefit from higher prices. A miner in Africa, Randgold Resources (GOLD), is basically correlated 100% to gold prices, What CEO Mark Bristow says is that in almost two days, the company benefits from gold prices.
Purchasing mining stocks
You also must purchase the correct amount of gold stocks. This is something Minesh Bhindi is teaching in the gold&silver for life course in great detail. Editor of gold stock analyst.com; J.C. Doody, opts on 10 gold stocks due to the fact that it allows for him to take some risk with junior miners or explorers as well as obtain the safety from a major.
Doody who would prefer heavily being invested in 10 tan being overly invested in two or worse under invested in 40 says; “There are quite frankly not 30-40 sticks worth buying in the gold space. The best you will become if you have too many is a mutual fund which is mediocre and if what you have are too few, you are merely taking on too much risk.”
If you opt for the route of gold stock, you must also be prepared do that rollercoaster ride.
Leverage does swing both ways so if the price of gold were to drop 10%, gold stock too can plummet 10% or even 30%. Often investors get spooked way to fast and end up selling out of gold stocks at the incorrect time.
Managing director at Atyant Capital, Pratik Sharma urges inventory to not become spooked by volatility says; “At Least once or twice a year, it will inhale and exhale 20%-30%. What you ultimately have to realize id 5-6-7%…these are meaningless things when you have a section which moves several times a year 20%-30% on the downside.”