Gold Penny Stocks Could Benefit From Gold’s Continued Rise

Guest contribution provided by Forex Traders.

Gold Penny Stocks Could Benefit From Gold’s Continued Rise

2010 was quite a volatile year in the foreign exchange market. In fact, the last three years have been littered with financial catastrophe after financial catastrophe. Of course, it all started during late 2007 and early 2008 with “concerns” in the Sub-Prime Mortgage Industry. But, in the spring of ’08, it seemed that all was well when Federal Reserve Chairman Ben Bernanke made the financial prediction that Sub-Prime concerns were contained and it would not have much of a spill-over effect in the wider economy.

A few months later in the fall of 2008, our modern global economy nearly collapsed with the failure of Lehman Brothers, Bear Stearns, Freddie and Fannie Mac, and a host of other large financial institutions that were overly exposed to the Sub-Prime market. After finding some footing of economic recovery in the first 3 quarters of 2009, the global economy was dealt another major blow in November 2009 when it became evident that Greece was about to suffer sovereign default. Greece was formally bailed out in May 2010, but then just a few months later in the fall of 2010, Ireland suffered the same fate and was forced to receive emergency funding from the ECB to prevent a collapse in its banking sector.

Currently, it looks like Portugal, Belgium, and Spain are all headed for the same fate as Ireland and Greece. This incredible uncertainty in the global economy has continued put pressure on risk assets as investors seek to hedge against further deterioration in the global economy. At the same time, gold prices have continued to rise to fresh all-time HI’s.

Penny Stocks

If an investor believes that gold is going to rise in price, there are several avenues of investment. First, an investor can buy physical gold. Or he could but gold mining stocks and equity in other companies that are heavily dependent on the price of gold. However, one of the most aggressive things an investor can do is to look for companies that are involved in gold mining, production, or distribution that are currently trading for just pennies.

These gold penny stocks have an incredible potential for explosive growth, but they also carry substantial risk of loss. If gold does continue to rise in 2011, then gold penny stocks may be an investment vehicle worth considering. One way to invest in gold penny stocks is to conduct market research and find junior mining companies. Junior mining companies are companies that target specific areas where they believe large mineral deposits exist. If these companies strike gold and discover areas that do have gold deposits, the stock value of these companies can rise dramatically in a very short amount of time. If the U.S. dollar is falling in value at the same time in fx trading, then even more upward pressure could be put on gold prices in general.

Great Basin Gold Limited – a Canadian junior mining company that has seen strong growth in 2010. The company is well capitalized and has several projects underway that could lead to aggressive growth in 2011. Currently, GBS shares are selling for around $2.50, up from a low in 2009 of $0.77. Price is still off its all-time HI of $3.77, but it could retest those HI’s in 2011, which would be a 50% increase on the year.

Brigus Gold – a junior mining company that has projects in Ontario, Saskatchewan, Mexico and the Dominican Republic. Brigus is currently trading at $1.65, well off its 52-week HI of $2.25. Brigus is set for potentially explosive growth due to its aggressive mining operations in Canada and South America.

These are only two of hundreds of gold penny stocks that are trading for a few dollars or less per share. The world of penny stocks is incredibly risky, but the potential for large returns is what draws investors. Always seek professional advice before engaging in any investment.