Due Diligence for Gold Investments

Steve Bush By Steve Bush, 27th Aug 2014 | Follow this author | RSS Feed | Short URL http://nut.bz/xywivea7/
Posted in Wikinut>Money>Investing

Before buying gold or any other investment, a due diligence process should be mandatory for prudent investors.

Investing in Canadian Gold

I played an active role in helping clients make investment choices for over three decades. One of the most important lessons learned during that time is the value of conducting extensive due diligence before investing in anything. For example, what should you know about Canadian gold before making an investment in either gold-mining stocks or gold bullion?

Before jumping into the example involving gold investing, here is a video with a thoughtful overview of the due diligence process:

Gold Mining Companies Worldwide

Gold was first discovered in Canada almost 200 years ago. Canada is consistently ranked among leading gold producers and was fourth in the world as of 2006 after South Africa, the United States and Australia. More recent rankings of worldwide gold production place Canada seventh with China, Russia and Peru joining countries ahead of them:

• China
• Australia
• United States
• Russia
• South Africa
• Peru
• Canada
• Indonesia
• Uzbekistan
• Ghana

Investing in Gold Stocks

Gold exploring stocks can involve both rewards and risks due to the cost and difficulty of finding new gold deposits. For investors seeking a way to participate in the possible success of Canadian gold exploration, common and preferred stocks are a prime candidate to consider. Some stocks for larger Canadian gold producers trade on the New York Stock Exchange. The securities for many smaller gold exploring companies usually trade on Canadian stock exchanges — the largest is the Toronto Stock Exchange. However, some gold producers based outside of Canada have Canadian exploration and mining activities. Many gold exploration companies based in Canada also have operations in other countries.

The Risks of Exploring for Gold

Price volatility in gold is common. Gold exploration companies often need more financial resources than originally estimated. The process of finding new gold deposits is expensive and risky because exploration success is subject to unpredictable variables. Many promising gold reserves in Canada are located in remote and cold areas. Environmental regulations can be a possible barrier — especially when open-pit mines are involved. The legal requirement to involve impacted Canadian native residents in mining activity decisions can result in lengthy delays until negotiations are concluded.

First Nation Communities and Gold

The native Aboriginal people in Canada are called First Nations. For many years, their legal rights were ignored by gold mining companies. However, companies exploring for gold in Canada today are expected to negotiate in earnest with First Nation communities when planning gold mining activities on or near native land. This frequently can impact gold exploring companies in Canada because over 1000 Aboriginal communities are located near mineral operations.

Canadian Gold Maple Leaf and Exchange Traded Receipts

Purchasing gold exploring stocks is not a suitable investment for everyone. For investors who want to invest in gold bullion directly, the Royal Canadian Mint produces the Canadian Gold Maple Leaf. The Mint also sponsors an Exchange Traded Receipts Program that allows investors to buy gold that is securely stored by the Royal Canadian Mint. However, gold bullion is also subject to significant price volatility.

Due Diligence for Your Investments

Why didn't I include names of specific stocks in this discussion? Here are three of my reasons for omitting such details:

• Each investor should determine their own tolerance for risk.
• The financial health of each gold-mining company can quickly change.
• Prospecting for individual gold-mining companies is like prospecting for gold (high risk and uncertain outcomes).

Whether investing in stocks, bonds, gold or real estate, you should anticipate the need to perform careful research and due diligence before finalizing your investment strategy.

Tags

Due Diligence, Gold Investments, Gold Mining, Gold Producers, Gold Stocks, Investing In Gold, Investment Choices

Meet the author

author avatar Steve Bush
Steve Bush is a business finance consultant and writer. He served in the military as an officer in the U.S. Navy Supply Corps. Bush obtained an MBA at the University of California, Los Angeles.

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