Advantages and Disadvantages of Investing In Gold Mining Companies

In the past, gold funds merely existed in the form of mining shares offered by companies such as Barrick Gold and Newmont Mining. As one of the earliest forms of investments, should people stick to gold mining shares if they want to get exposure in gold? Or should people put their money in newer investment vehicles such as gold-backed ETFs?

If you believe that gold’s spot price will rise in the future and have a short-term look output for the precious yellow metal, then investing in mining stocks is a good idea.


One of the major advantages of owning gold mining stocks is that their prices skyrocket when physical gold’s prices move up. This means that investors who hold mining shares can get a bigger payout than people who own the actual metal. Consider Yamana Gold’s operational costs, which are currently at $864 per ounce. If gold’s spot price now costs around $1,200, Yamana Gold will make a profit of $334 per ounce of its mined gold.

The other advantage of owning gold mining shares is, of course, they are easier to store than actual gold. Mining investors won’t have to worry about the annual costs of keeping their precious metal reserves in secured vaults.


Sadly, there are more disadvantages of owning mining stocks than advantages. If gold mining stocks skyrocket when the actual metal’s prices go up, the same happens when gold’s prices go down. Mining stocks decline sharply with even the slightest decrease in gold prices. In 2011, the precious yellow metal peaked at around $1,800 per ounce. When gold prices fell on the same year, mining stocks declined by around 50% – 70%.

Another disadvantage of owning gold mining stocks is that operating a gold mine is extremely difficult. It usually involves a lot of chemicals that are being frowned upon by many environmentalist groups, which is why it’s very difficult to open mines just about anywhere in the world.

All the gold ores that are easy to extract all over the world have also been extracted, according to gold investment site BullionVault. This means that for companies to mine more gold, they would need a new technology that would allow them to extract precious yellow metals deep within the Earth. New technology doesn’t come cheap since oil – a commodity that’s becoming more expensive everyday – is needed when it comes to operating mines.

Another disadvantage is that when the world gets enveloped in hyperinflation, currencies will end and gold mining stocks won’t be able to help you. Only those that own the actual metal will be able to use something to trade for products and services.

If you decide to invest in mining stocks, make sure to check the company’s operational costs per ounce and if it has a big mining operation. A company that has discovered a new technology to mine gold out of hard-to-reach areas is an indicator that it will succeed in the long run.

Author: Natalie Chan

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Natalie is freelance writer specializing in precious metals investments. She used to only write lifestyle articles but decided to broaden her skill set by getting involved in finance in 2002. On weekends, she teaches economics to students online.

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