In the wake of recent financial turbulence of the global financial crisis, many seasoned and novice investors alike have set their sights on investing in gold stocks. Why? Throughout the entire history of the world no asset or possession has held the global appeal that gold enjoys, and this appeal has only grown stronger in light of the monetary and economic changes that have faced the world these past few years.

Simply put, investing in gold stocks offers a measure of real or perceived safety and security which is comforting to investors who have watched their investments in other industries, and the value of the dollar, drop so sharply over the past few years.

Investing in Gold Stocks

There are two basic ways to invest in gold. The first is to buy physical gold with the hope that the price of that gold will someday rise, but this, as you might expect, can be very expensive and outside the realm of possibility for the majority of investors. The second way, and the one we will discuss in a little more detail in this article, is investing in gold stocks.

A fact that is important to keep in mind is that investing in gold stocks is not investing in gold, but investing in gold mining companies. Think of it like this: If you were to invest in, say, IBM, and the company has a banner year in profits, the value of the stock you hold is going to rise correspondingly to the larger profits. The same can be said about investing in gold stocks. When the price of gold rises during a given period, it stands to reason that the gold mining companies are going to have larger profits, which will then be passed on to the stockholders.

It sounds easy, but there are several factors to consider when investing in gold stocks--factors which add a substantial amount of risk and may affect the value of your investment. Consider carefully the long-term performance of the company you are investing in and its gold hedging position. Ask questions about how much reserve they calculate is in the ground and whether their operation is open to political or environmental risk. Remember, just because the price of gold rises doesn’t mean that your shares in a particular company will also rise. Only the gold that they are able to get out of the ground and their final profit margin will directly affect your portfolio.

Investing in gold stocks can be very lucrative, but there is also a substantial amount of risk involved which must be considered carefully before taking the “plunge.”