Invest In Gold Mining Companies Through Gold Mutual Funds
Gold Mutual funds acquire the name because their fund managers use the investment corpus to invest in securities issued by companies engaged in mining and distributing precious metals, notably gold. Investments in gold funds give the investor an exposure to various gold companies engaged in gold production all over the world.
Gold funds equity is very volatile and can gain or lose over ten percent in one day. The Lipper Golf fund index measures the performance of large gold funds. Statistics show that the index fell by 17.1 percent in August 2002 and rose by 16.1percent the very next month. This volatility exists because gold mutual funds invest in gold-mining stocks and not in the metal 'gold' itself. Gold mining stocks magnify the price of gold. Even small moves in gold prices have a very big impact on the earnings of mining stocks. Exploration and mining of gold are also fraught with risks. There exists a large potential for gain/loss.
Take the example of Newmont Mining. This Denver (Colorado) based company is the world's largest gold producer. Apart from the US, it has mining operations spread over numerous countries like Australia, New Zealand, Peru, Bolivia and Indonesia. In 2003, the company produced approximately 2.3 million ounces of gold with average cost of production at $198 to $208 per oz. As per company estimates, just a $10 rise in the price of gold (all other factors remaining the same) would change the company's earnings by about $50 million. The price rise considered was just about 2% of the erstwhile price of gold at $410 per oz. This amply illustrates the effect on mining stock earrings vis-a-vis a rise in gold prices.
Gold Mutual Fund managers generally invest in mining companies that either have a sound background in exploration/mining of gold and precious metals or those possessing clear indicators suggesting their strength in the required field.
However, experts handling asset management and investment for gold mutual funds are aware of relevant traits and take considered investment decisions as per the current situation/future predictions. Exploration and production of gold and other precious metals is on the rise. With financial experts taking care of the investments, buying units in a reputed Gold Mutual Fund is a secure way of investing. But it must be understood that when an individual investor buys units in Gold Mutual Funds, he/she does not come in physical possession of gold. It is the mutual fund, which holds the gold for all the investors.
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