THE ideal proxy for gold, gold mining stocks traditionally rise about six to nine months before the price of gold and so give quicker profits. But, while mining stocks by no means meet all the values of gold, as a financial investment they offer many of the advantages.
The time is not yet right to buy gold bullion because it is costly to store and is a non-productive asset paying no interest or dividends.
Like any speculation gold should be bought at the bottom of the market and sold at the top. The problem is no one can correctly define these levels.
While everyone should have some gold bullion, especially gold coins for calamities, in normal times a workable proxy for gold is required. When you buy blue-chip (dividend paying) gold stocks, they pay their way while you wait for gold to rise in price and there is no storage charge.
Historically when the gold price rises 10 per cent, gold mine stocks rise 25 per cent giving more profit.
With mining stocks you get great leverage which makes them much more profitable than gold. For example, if gold sells for US$350 (HK$2,700) per ounce and the mine's production cost is $300 per ounce, it makes $50. If gold rises to $400, it makes $100 perounce, a 100 per cent increase.
