Tuesday, October 30, 2007

The Promblem with Gold Mining

The Amero and the decline of the US dollar seems to be creating a new generation of gold bugs that are looking to put their money in either gold coins or in gold mining stocks.

Even with the soaring price of gold, mining companies are facing increasingly more difficult pressure as competition for a dwindling gold supply heats up. Mining companies that have large reserves have added flexibility over smaller Juniors.

Gold Miners also face 2 other significant problems. Mining cost are increasing at a substantial rate, as the cost of labor has went up drastically. The high cost of constructing a mine have also added to the challenge. If rising costs are not enough mining companies are under more stringent environmental controls. The hardship and the time it takes to get approval for a mine has gone up substantially over the last 20 years. These are among the reasons why physical gold has been outperforming most of the miners of late.

When looking to invest in a gold mining company look for a low cost producer and one that has a lot of reserves. Stay away from the mid size producers and look at those in the top tier, if all else fails you can always try this.

1 comment:

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