Why buy gold stock now when gold has already risen 27 percent since 2001 one might ask?
Every year 2500 metric tones of gold are dug out of the Earth. Despite this the demand for gold still exceeds the supply as evidenced by the growing global gold demand. Estimates today are that four to five thousand metric tones of gold are sold each year so the demand for gold is exceeding the supply by at least sixty percent and even up to one hundred percent in some areas such as India and China where the demand for gold is reaching astronomical heights.
And this is despite a massive sell off of gold by western governments anxious, over the past few years, to gain more control over their paper money by removing the gold standard. That sell off was, in fact, sufficient to make up the short fall between demand and price for a short time, but now that supply is exhausting itself as the gold is flowing mostly to the Asia markets and disappearing into its bowles. Eventually a new balance will emerge between the price of gold and the demand but this is likely to be quite a ways off yet. Demand is quite likely to exceed supply for some time yet.
So unless there is a massive sell-off by the owners of the world's gold reserves, reducing the deficit in available gold, we will quite likely see a continuing rise for some time.
So what does this mean for us gold enthusiasts in the street?
It means that, regardless of the buying and selling of gold between governments and large institutions, the value of gold will remain the same if not continue to increase. Especially as more paper money is printed and the value of the dollar and other currencies drops with inflation.
We will still be able to buy relatively as much, if not more, today and in the future, with an ounce of pure gold as we could 20 years ago.
There are many ways to invest in gold. One can invest in stock, derivatives or buy actual gold and if you want to take advantage of the current bullish trend one should first consider how much of one’s portfolio one wants to commit to this enterprise.
Then it is a question of how is might affect a gold company's performance and public perception for example such as management practices, speculation in the markets and so forth. There are also tax considerations to be taken into account. Investing in actual gold however tends to carry less risk as you always have the gold in your hand and, particularly when in the form of gold coins, carries no tax implications at all.
When you want to buy gold stock then, it is probably more prudent to buy actual gold coins and bars and 'stock' them away, rather than paper certificates that can give endless problems and possible unwanted tax issues.