Gold prices have breached $5,000 per ounce. For investors who want exposure without buying gold directly, miners are a natural starting point. Barrick (NYSE: B) is a chance to invest in an established player, while Caledonia Mining Corporation (NYSEMKT: CMCL) offers a growth angle through reinvested profits. Let's see which stock suits which kind of investor.Whatever the metal, miners are effectively a derivative of the commodity. Unlike options or futures, companies don't expire. Like derivatives, miners offer enhanced upside on the change in spot prices of the underlying metal. A 50% gain in gold could translate to a 100% gain in a miner's earnings or free cash flow, depending on margins and volume, which affects the stock price in a similar way.Of course, when the price of the metal goes down, the reverse is true. Investors, therefore, need to choose miners well and find ones that enjoy this benefit but don't become insolvent on the downside. After all, mines are very large assets and hard to sell off. Unionized employees may strongly resist reductions in their hours. Indebtedness can go from being an operating cost to an existential threat. Problems can stack when margins are squeezed by lower metal prices.Continue reading
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