Investing in Gold and Achieving Our Glory
 
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If you are planning to invest some of your money in gold, then you must decide the companies where you are going to put it in. Well, it's not that easy. You need to overcome many odds of investment options and assess the fundamentals of these exploration companies.

The first step of deciding on the companies is to filter a few companies from the other hundreds. You will have to analyze them properly so that you can pick the better opportunities. You can easily gather the information required for the analysis from the company websites, press releases, and various gold publications. Here are some points that you should analyze while choosing these stocks.

1. Market Capitalization: Market cap is simply the number of outstanding shares multiplied by the stock price. Comparison between the market cap and the market price of gold at reserves shows whether a company is undervalued or overvalued. The market cap analysis is different for both the junior companies and the bigger ones.

Studies say - whether it is for gold stocks or any other stocks, it is a good decision to invest your money in those companies which are undervalued relative to its peers with overvaluation. The studies also say that the margin of safety is much greater in such companies.


2. Management: In your analysis of the exploration companies you should also include the management (and its decisions) as an important factor. The company's management should have expertise on the both the sides, the mining sector and also the business sector. If they are not able to keep a good relationship with the shareholders, then it will get reflected on the overall performance of the company. A poor balance between these two makes the company loses the market support and also the confidence of institutional brokers.

3. Money: The exploration companies have to spend a huge sum of money for a long time without any cash flow. So, if there is any kind of delay in building the mines, then it creates an inherent risk. As an investor, you have to check whether the company is prepared for such risks or not and if they will have to come back again to the market for additional financial support.

4. Minerals: It is a fact that companies exploring gold and a significant amount of other metals side by side tend to have lower valuation than the pure gold exploring companies. This is significant for the reason that in the gold price cycle, deposits on gold/silver rises to the same multiple as the pure gold companies. This is the reason why companies producing gold and silver possess greater safety of margin over the pure gold producing companies.

There are some others factors like mine life cycle, volatility as well and they also need to be studied/considered before selecting the stocks. Before making the stock selection, you must realize that only one-third of the exploring companies become producer of gold. So, you must be very careful while choosing the right company/s to invest in.

 





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