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Gold Might Not Be Cheap, But Gold Mining Stocks Sure Are.

Ace September 18, 2011 0

If you’ve heard anything about gold recently you’ve probably heard investors or financial experts refer to it is as a “Bubble”. All this means is that it’s an overvalued asset whose price of ultimately bound burst.

Yes, gold does seem to be very expensive. And with it’s most recent price at around $1,800 an ounce gold has been up more than 40% over the past year. More and more people are investing in gold hoping that over the next few years it will continue to go up in value so they can make a quick sale. Or they will just wait patiently for the next time this bubble comes around and make their money than. According to Investors the only reason gold is up is because of fear that paper currencies will not retain their value.

But this does not mean that it is being over examined. Unlike other investment vehicles like stocks, which provide dividends and earnings growth, and bonds which provide interest income, gold really has no cash value.

In all honesty it seems like everyones just guessing what gold is worth. Whether you think gold is just a bubble or you feel it’s heading to double or triple over the next few years you might be right.

When you can’t use benchmarks like price/earning ratios or bold yields, trying to figure out what the true worth of gold is nearly impossible.

Although, there is one way to rationally invest in gold and that’s buying stocks of gold-mining companies. They do however seem to be cheap based on stock-market value.

Even though gold is at record highs, shares of gold miners are trading at around 18 times earnings, or 2.4 times asset values. this is one of the lowest record to the metal itself. Just looking at gold mining companies like Barrick Gold and Newmont Mining who are trading at 14 times their earnings as well is a perfect example.

Manager of Tocqueville Gold Fund, John Hathaway, says, “Mining companies have rarely if ever been more profitable, and generate high returns so long as gold stays above $1,500 or $1,600.”

But gold stocks are still a high risk player just like the metal itself. It can definitely burn you out if you’re trying to get rich quick. Gold has probably been the cliche to a boom-bust industry. Especially when it comes to all of those who invest during the fat years and pull out during the slow years.



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