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Gold has been one of the top investment assets over the past 10 years. And with the Fed set on keeping rates at 0% until 2014, gold should continue to shine for years to come.
While gold is an excellent investment, and one I recommend everyone have some exposure to in their portfolio, gold miners offer another way to profit from higher gold prices. When gold moves higher, gold miners are able to sell it at a higher price.
When gold miners are able to sell gold at a higher price, and their costs stay the same, earnings growth quickly outpaces the advance of gold prices. Let me explain:
When Barrick Gold (NYSE: ABX) is able to sell gold at $1,500 and its cash cost to mine gold is $1,000, Barrick makes $500.
Now assume gold moves 17% higher to $1,750, which is where gold prices are near to right now.
When Barrick is able to sell gold at $1,750 and keep its cash costs to mine gold at $1,000, earnings rocket higher. In the example, Barrick earnings would be $750, a 50% increase from $500.
Gold miners have the ability to expand earnings as gold moves higher so long as they can keep the cash cost to mine gold stable. As stockowners, you are "entitled" to future earnings, which makes an investment in gold miners a great alternative to owning physical gold.
What are the three best junior gold miners?
The likely increase in gold should have a positive impact on gold miners. Today’s video analyzes three top junior gold miners. One of the three has 50% upside from its current price. This video will show you how to trade three gold mining stocks ready to profit from $2,000 gold.
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Jason Cimpl
Editor, TradeMaster Daily Stock Alerts
Washington, DC
Editor’s Note: Jason’s trading service, TradeMaster Daily Stock Alerts, just had another banner year. But recent optimism has him leaning bearish. Click here to learn more.