Risks and scams abound in the investing world and gold is not immune to them. Clever swindlers know that not all individuals are well-educated when it comes to making investments and they do not hesitate to take advantage of this situation. The most prevalent risks and those that sometimes cross over into being scams pertain to junior gold stocks, gold ETFs, rare coins, and cash for gold. We’ll talk about each in the coming sections.
Junior Gold Stocks
Junior gold stocks are extremely risky.
A junior gold stock is a share of a mining company that is relatively new on the scene and usually is still in the exploration and development phase. The company most likely does not have any proven gold reserves as revealed by seismic surveys on the land being mined. A proven gold reserve means there is greater than a 90 percent chance that deposits of gold are present . People invest in junior gold stocks with the hope that the company will find a large deposit and explode in size. Such findings equate to increased returns for investors.
These junior stocks often trade for $5 or less per share, so they are referred to as penny stocks. There is always risk involved in investing in penny stocks. If a company is not successful, it could fold, taking all of the investor’s money with it. Due to their high level of risk and highly speculative nature, these stocks are more volatile than those of companies with proven reserves.
Things like company location, management, and the market need to be thoroughly researched and considered prior to selecting a junior gold stock. This can be very time-consuming for an investor. Another drawback is that it is much more likely for a junior mining company to go under than it is for a larger mining entity. Investors should not put themselves in such a precarious situation when there are well-performing gold mutual funds and shares of stable gold mining companies with proven reserves available.
Next Part: Rare Coins