Forum Archive Index - May 2002

[Derek <dkw@paradise.net.nz>]

 >What i can't figure out is if gold itself has only increased a few
 >percent over the last year why have gold stocks increased as
 >much as they have (60% or more?). Doesn't this mean that the
 >gold stocks have got way ahead of where they should be, ie the
 > money has already been made.

I think that there is some truth in this, apparently gold stock prices 
generally increase ahead of the gold price. I think that it is partly 
because of the ease in investing in stocks compared to gold, especially for 
the small investor.

However the profits of the gold miners will increase by more than the 
percentage increase in gold price. This is because the profit is the 
difference between the total cost of production (including lending costs) 
say $230 an ounce and the gold price say $280 an ounce, ie a profit of $50 
an ounce. If gold went to $3.30 then the profit would be $100 an ounce or a 
profit increase of 100%. (I have made these figures up just to illustrate 
the point.)

Regards,
Derek






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