MenInTights
not a plastic bag
Lets say that Andrew and I both wanted to buy some gold when it was $250 an ounce. Andrew buys one ounce of gold for $250 and ounce plus a 6% buyers fee. I buy $250 stock of a gold mining company, plus $10 for the trade. In a few years, gold selling at $500. Andrew has doubled his money minus the buyer and seller fees.
How has my gold stock done? Well, when I bought it, the company could mine for gold for $225 an ounce and were pulling 10 tons a year out of the mine. So, they were making around $8M per year($25 profit per ounce). Lets say the stock was $10 and they were making $0.50 share for a PE=20.
Now gold is $500/ounce and the company is still mining gold for $225 an ounce. That means, they are making $275 per ounce! A 11 fold increase. Holding everything else common, they are now earning $5.50 per share. That translates into a stock price of $110.00. That is if the company doesn't run a second or third shift or buy any more properties.
This is the beauty of gold. It's not as exciting as internet companies, but if gold is rising, its a good safe place to be.
How has my gold stock done? Well, when I bought it, the company could mine for gold for $225 an ounce and were pulling 10 tons a year out of the mine. So, they were making around $8M per year($25 profit per ounce). Lets say the stock was $10 and they were making $0.50 share for a PE=20.
Now gold is $500/ounce and the company is still mining gold for $225 an ounce. That means, they are making $275 per ounce! A 11 fold increase. Holding everything else common, they are now earning $5.50 per share. That translates into a stock price of $110.00. That is if the company doesn't run a second or third shift or buy any more properties.
This is the beauty of gold. It's not as exciting as internet companies, but if gold is rising, its a good safe place to be.