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Researching Gold Mining Companies Stocks
Prior to investing in stocks of a producing gold mining company one thing that is very important is that you find out from management about where their hedging policy is expected to be going and forwarding. Do not assume that this is something that can be done by simply looking at a company's current hedge spot. Doing it this way can be somewhat concerning because the outcome could end up being completely different from what you thought. There are a lot of companies that have formed different opinions on their outlook on gold and what the future policies concerning hedging are going to be like. A good number of companies will inform you that they do not provide an attitude on the gold price or don't even try to estimate where the price of gold is going to be in the future. However, when if you ask them about hedging policies, they are very willing to fill you in on the information. This is perhaps one way in which an investor can feel out the situation, therefore try to see just how aggressive the hedging policy is and this is an indicator of what the company you have gone to thinks about where the price of gold is going. It is imperative to make sure the management of a company has a parallel viewpoint to your own and that the measures they take go together your own approach. If you are bullish on the gold price you want to invest in companies whose management teams are also bullish and as a result have a very small amount of hedging or not any at all. On the other hand you may perhaps be of the view that the gold price may be increasing but you are in addition disturbed regarding the downside risk. And believe it or not there are some gold mining companies that are concerned about the same thing and that will out of their own free will hedge up to 30 percent of their reserves on a constant basis.
In the past few years, forward selling has gone into serious attack from classy gold stock investors that are under the opinion that it is the opposite of a mining company. If you look at it the way they do, what is going on is that there is involvement in financing operations that are holding down the price of the commodity they are trying to produce. This is a concern that makes sense and the answer has been to start reversing the hedge sites. The exact same companies that had added around 200 tones per year to supply over the last ten years have instead added on 500 tones to demand in the last few years.
If we were to take away that supply from the tables, we would end up with a run away gold price. Due to the heavy hedge sites accumulated by the mining companies in the 1990’s, there is still a good chance that hedging is going to continue going on in the future. The number of tones that could come from the new demand category might just take over the market by surprise and add to the bullish argument for gold for a good number of years still.