How to trade gold: Instruction for beginners (Part 5)

Gold Mining Companies Stocks

When the demand for the precious metal increases, so does the price of gold, and hence the value of gold mining stocks will rise. Although, it should be borne in mind that there are other factors that may affect the securities of gold miners. In particular, company management decisions and industry conditions will be determinative.

Advantages:

1. Price Increase.
Typically, gold mining company stocks go up in price along with gold rates. This suggests that you can make money on your own investments if you sell assets at the right time.

2. Receiving Dividends.
Most gold miners are willing to pay dividends to shareholders. This will ensure a steady return on the investment made.

3. Use as a hedging instrument.
Securities of gold mining companies can be used in gold trading to protect against risks.

4. Possibilities for diversification.
Gold mining stocks have little correlation with other assets, including the price of gold. This indicates that your investment portfolio will be less volatile if you invest in them.

5. The market impact.
The value of gold has an impact on many other assets, including securities. Gold stocks can help you make money in other markets without trading directly.

Disadvantages:

1. Volatility.
Unlike gold itself, gold mining stocks are more volatile. This means that you risk losing more money if the value of gold falls.

2. Currency Risk.
Gold mining stocks are priced in U.S. dollars, so they will depend not only on the price of gold, but also on changes in currency exchange rates. To avoid such problems, you should look for those companies that convert gold stocks to U.S. dollars when making dividend payments.

3. The Risk of the Mining Industry.
The price of gold can be predicted not only on the basis of supply and demand. You need to consider the situation in the mining industry. The success of your investment can be affected by environmental issues as well as labor disputes in companies in the industry.
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Follow our updates for useful information in our series of articles. You can also visit our previous article to better understand this topic.