GOLD MINING STOCKS ARE NOT THE SAME AS BUYING GOLD
When you invest in stocks, you are going to make mistakes. You are going to pick losers. You have to accept it, learn from it, and move on. Nobody can pick winners all the time and sometimes the only way to learn is by making the mistake yourself.
I made a mistake back in the middle of 2008 when the economy really started to go south. I could see that things were getting ugly and I wanted to put money in something that should do well in troubled times: gold. Gold is often seen as a hedge against everything bad and it has historically performed well when the economy was rocky. I decided that I wanted to put some of my money in gold but I didn’t want to go out and buy actual gold bars or coins. They are too much trouble and of course you have the problem/risk of where to safely store them if you buy it in that form.
I have said many times that I got my start buying stocks with the guidance of my Dad and what he taught me was invaluable. Every child should be as lucky as I was to have a Dad that knew enough and cared enough to teach them about investing. But alas, not everything I picked up from him was correct.
I am sure I got the idea from him that buying gold stocks (mining companies) was essentially the same thing as buying gold itself. Maybe not exactly the same thing he told me, but good gold mining companies often mirror the price of gold. If you think about it that makes sense. After all, gold mining companies are looking for gold and as its price goes up, what they are digging out of the ground has more value. If the cost of gold goes down, the “product” these companies are mining has less value and their stock probably will go down.
Because 2008 was shaping up to be a terrible year for stocks, I wanted to buy gold and I ended up choosing to buy shares of Kinross Gold Corporation (KGC) and I got in at somewhere around $19 a share. I figured if gold continued to go up, so would shares of KGC and I wouldn’t have to bother with buying physical gold. Great for the lazy part of me.
Well, today on 2/17/2012 I woke up to see that KGC was down more than $2 overnight on their poor earnings report and now sits somewhere around $10.50 which is down about 45% from the $19 price I bought it at more than 3 years ago. Here is the ugly Kinross Gold chart for the last 3 years:
And how had gold itself done in that time period? It has just about doubled in value and made investors in it VERY happy. Here is the 3 year chart of KGC which I bought and real physical gold, which I never bought: 
Obviously I now realize that buying stock in a gold mining company is NOT the same as buying gold. There are a lot of variables at play when you the stock of any company and any or all of those variables can hurt (or help) its price over time.
In Kinross Gold’s case they are down because of higher labor costs, higher mine expenses, higher production costs, a one time accounting charge, and just not a great year at finding gold. These things have all offset the fact that the price of gold has gone up to about $1900 per ounce at one time and now sits at about $1650.
This is not a mistake I will ever make again. Investing in gold is clearly very different than buying stock in a gold mining company. Lesson learned.
