Investing In Gold Stocks Can Be Risky, Three Steps To Lessen The Risk

| March 26, 2015 | 2 Comments

safelyIs Investing In Gold Safe?

There you have it – one of the most popular questions I’ve gotten in the last few months.

Is it safe to start investing in Gold?

Let me be perfectly clear – NO.

Nothing is safe.

No investment you make right now… or any time in the future is safe.

The government could collapse tomorrow and your government bonds would be worthless.  You could buy stock in a Fortune 500 company and it could be worthless if the management team is faking financial statements.  That famous painting by Picasso could be a forgery and you’d have lost your investment.

No investment is 100% safe.

But – if you do it right, you can invest in solid gold penny stocks… and improve your chances of making big money, while LIMITING your risk.

If you want to see what I think of investing in gold stocks, check out my other article:  Should You be Buying Gold NOW?

So, you’re bound and determined to start investing in gold penny stocks.  Here are a few things to keep in mind…

Three Ways To SAFE Investing In Gold Stocks

Alright, there are thousands of ways to make your investments safe… things to look at, strategies to follow, and ratios to monitor.

I’m picking my favorite three ways to invest in gold stocks (and limit your risk)…

Now remember, nothing is 100% safe, but follow these steps and you’ll be safer than the average investor throwing darts!

Step 1 – Look for production

When looking at gold companies, there’s a line that separates the men from the boys… and that’s production.  Plain and simple, is the company consistently pulling ore from the ground and getting gold from that ore?

The longer they’ve been doing it the better.

Look, a lot of small mining companies are betting big on finding a mother-load of gold… but most of them don’t pan out!  Yes, that pun was intended!

Finding gold, or any commodity that needs to be mined or extracted from the earth, isn’t easy.  And it can be costly to develop properties… and production costs can fluctuate up and down faster than Kim Kardashian’s skirt line.

Stick with the producers. It will eliminate a ton of ways you can invest in gold… but your risk will be limited.

Step 2 – look at cash reserves

Companies running mines have to spend money on capital equipment.  They have to be making big capital expenditures… and if they don’t have the capital to expand… than their growth is limited.

Look at past expenditures, look at their plans for opening new mines, and expanding current mines… look at what kind of capital they need to spend to keep the business humming… and make sure they have the cash to do it.

If these numbers are hard to find… well maybe management is trying to hide something!

Step 3 – watch the chart

Keep a close eye on the gold stock chart for a while.  Look to see how it trades, and take positions when you get the best opportunity.  Look for levels of support.  Buy on weakness, provided it’s market weakness and not weakness in the company.

Finally monitor how the company reacts to news and management announcements.

Remember, the more you know about a stock, the better you’ll be able to identify risks and sidestep the stocks likely to cost you money.

Now, these three tips are good rules of thumb… but they should never take the place of solid deep due diligence on gold mining companies.  Remember, investing in gold penny stocks isn’t without risk.

Good trading…

Brian Kent

Note:  Brian Kent has been trading the markets for more than 2 decades and now writes and edits for PennyStockResearch.com.  You can sign up for the penny stock research newsletter a trusted source for the truth about penny stocks! Sign up today and get a free research report – http://pennystockresearch.com/free-reports/.

 

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Category: Trading Penny Stocks

About the Author ()

Brian Kent is the Editor for PennyStockResearch.com. He also pens Penny Stock All-Stars, an investment advisory focused on discovering small-cap and micro-cap stocks that are destined to become the market's next Blue Chips.

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  1. Brian says:

    Thanks Brian, Great article… I look forward to reading more just like it.

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