The Risky Stocks in the Gold Sector

Morningstar.com came out with a take on the "stocks to avoid" in the Gold sector. Kinda interesting to see major publications coming out with avoid and sell recommendations-until a few years ago, major publications were only a mouthpiece for Bulls and company-which included the CEOs, the Mutual Fund managers, and the analysts, who were basically feeding of these guys to come up with their "independent" analysis. That lead to the collapse of Enron and Worldcom, and suddenly the analysts became more aware of how they were not being objective in their reporting. There was a big change in the analyst community, and since then, reporting has become fairer. Cheers to that!

The "stocks to avoid" mentioned in the Morningstar story are: Cambior, CBJ; Bema Gold, BGO; Hecla, HL and DRDGold, DROOY. See full story here.

Weak balance sheets, higher costs, and the companys' small size are the key reasons why these are risky investments. Investors in Individual stocks should generally be aware of the biggest risk they take-investing in a small company. In the investing world, size does matter-if a company is small, it is more susceptible to rapid gyrations in it's stock price based on the movement of the price of the product it sells, in this case Gold-they can make a killing if the price shoots up, or go under fast if the price collapses. If you are holding small caps in your portfolio, make sure you have a bunch of them to negate this effect.

Serious investors should consider the majors like NEM, FCX and AU. These are the big dogs in the Gold mining sector-and are investment worthy stocks. Or a fund like ASA, which has all the major Gold stocks in it, and personally is my investment of choice for the Gold Market.

Sanjay John G.