Invest in Gold Bullion or Gold Mining Companies?

Invest in Gold Bullion or Gold Mining Companies?
If you own a gold fund, you've probably heard about the big gains gold bullion has made this year. You may also be wondering why your gold fund hasn't shared in any of those gains.

The short answer: If you invested in a fund that buys the shares of gold-mining companies — as many do — you probably lost money this year. If you bought shares of a fund that buys the metal itself, you made money.

That's not the normal order of things. Typically, gold miners fare better than the metal itself in a bull market for gold. But these are not typical times.

The argument for gold-mining stocks is fairly simple. When the price of gold rises, a company that produces gold sees its earnings increase at a faster pace than the metal itself. Let's say you owned a mine that could produce gold for $1,100 an ounce. When gold is $1,200, you make $100 an ounce in profits.

Let's say that gold jumps from $1,200 to $1,500 — an increase of $300, or 25%. For the gold miner, however, profits have jumped from $100 to $300 — a 200% gain.
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