Gold Mining Stocks And Gold Mutual Funds

         

               When compared with investing in gold

          itself, investments in shares of gold mining companies

          have a number of advantages and disadvantages, depending

          on your investment needs.  Among the advantages are the

          fact that most gold company stocks pay a dividend which,

          dependent upon its magnitude and surety, can yield

          current income from the investment.  And generally, if

          gold metal prices increase, earnings and often dividends

          will rise.

               You should also determine whether the company in

          question is a pure gold play or whether it has some

          degree of diversification.  Diversification, as such, may

          diminish the movement of earnings with gold price changes

          but may, however, provide cash flow and alternative

          earnings in times of low gold prices.  Individual

          portfolio requirements will dictate which factors are

          most important.

               An investment in gold mining stocks should be

          monitored on a regular basis because ore bodies can be

          mined out, unit costs can equal or exceed market prices,

          and mines can be shut down.

               As with all investments, there is an ongoing need

          for timely portfolio supervision.  If you can't or don't

          want to do it yourself, it can be done for you by

          investment in a mutual fund that invests in the shares of

          gold mining companies.  With such an investment, through

          the payment of a fee you can gain a professionally

          managed diversification of your gold mining stocks.

          Gold Mutual Funds Offer Many Advantages

               If you would like to make a modest investment in

          gold mining stocks and are looking for the safest and

          easiest way of doing it, the answer lies in mutual funds.

               Why?  First, easy investing.  Call a mutual fund and

          ask it to send you a prospectus.  If you like what you

          read, just send in your application form and check.

          Second, you can invest in some funds for as little as

          $250!  Third, a gold mutual fund is less risky because

          its risk is spread through its ownership of shares in

          dozens of different gold mining companies. Fourth,

          there's also a possibility of dividends.

               But all investments related to gold mining are

          investments in a business -- not in gold itself -- and

          carry the normal business risks of any stock investment.

                      WHO DECIDES THE PRICE OF GOLD?

               Gold is traded around the world and around the clock

          with the price always changing back and forth between

          London, Zurich, Hong Kong, Winnipeg, New York and other

          major gold trading centers.

               However, prices published in your local newspapers

          are usually based on either prices issued at noon and at

          the close of trading by New York's Commodity Exchange

          Inc. (COMEX) or on the famous twice daily London "fixing"

          by major bullion dealers there.

               In a ritual carried out since 1919, each member of

          the London Gold Market is represented at the fixing and

          its representative is in direct communication with his

          own trading room, while a representative of one of the

          major bullion houses acts as chairman.

               After considering the price at which gold has been

          trading so far that day, the chairman suggests a price

          which the gold market members communicate to their own

          traders.  The traders respond by telling the chairman

          whether they wish to buy, sell or have no interest.  The

          chairman then suggests other prices until all buyers and

          sellers agree on both price and quantity.  At that point,

          worldwide supply and demand comes into balance and the

          chairman declares the price "fixed."

               But immediately thereafter, traders begin to change

          the price in accordance with the realities of supply and

          demand in their own trading area.

                             GOLD AND THE IRS

               A new Internal Revenue Service ruling may stir

          thousands of coin dealers -- who stopped selling bullion

          products in the 1980's because of burdensome reporting

          requirements -- to once again sell bullion without fear

          of running afoul of government regulations.

               The new regulation "Revenue Procedure 92-103" states

          that information returns filed on Form 1099-B are only

          necessary when sales are equal to or exceed Commodity

          Futures Trading Commission contract sizes.  For gold

          bars, the contract or sales size is 1 kilo (32.15 oz.)

          with fineness of at least .995.  For 1-ounce gold Maple

          Leafs and 1-ounce gold Krugerrands the sales size is 25

          coins.  No other gold investment products are subject to

          IRS reporting.  Amounts for silver, platinum, and

          palladium products are also detailed in the ruling.

               Since a 1982 IRS ruling, it was widely assumed that

          all retail bullion sales required a report to the IRS.

          The cost and burden of that reporting, coupled with

          increased government audits and rigid but arbitrary

          enforcement, has caused perhaps as many as 5,000 small

          coin dealers and metals brokers to leave the precious

          metals bullion business in recent years, according to the

          Industry Council for Tangible Assets which fought for ten

          years to change the regulations.

               Many of the thousands of coin dealers who stopped

          selling bullion products out of fear, confusion and

          uncertainty over the previous ruling should now feel

          sufficiently confident to reestablish sales and service

          to their customers.

               The prospect of thousands of coin dealers and

          bullion brokers reemerging as active sales entities for

          bullion, bar and coin products can be viewed as a highly

          positive development not only for the coin dealer

          community but the precious metals industry as a whole.