As gold price zoomed in 2009, gold stocks have turned out be the best destination for investors. There is a rush to invest in gold mining companies. Mining companies are scrambling for new sites in hot destinations like China. Is it safe to invest in gold stocks so that as the yellow metal price zooms, gold stocks will give you better returns?

Several bullion analysts have predicted that 2010 will be the year for gold stocks. Following is a a glossary that helps to investing gold and in junior resource gold companies:

Accelerated Supply: Gold reaching the market through lending and leasing before it is physically produced.

Accrued interest: The interest due on a bond since the last interest payment was made. The buyer of the bond pays the market price plus accrued interest.

Acid mine drainage (AMD): Highly acidic and metal-rich run-off resulting from the oxidation of sulphide minerals when they are exposed to air and moisture. Usually creates a red and orange sludge that requires treatment so as not to contaminate waterways.

Acquisition: The acquiring of control of one corporation by another. In “unfriendly” takeover attempts, the potential buying company may offer a price well above current market values, new securities and other inducements to stockholders. The management

Actual Volatility: Actual measured price volatility from the historical data records. See volatility and contrast implied volatility.

Adit: A horizontal access from the surface to underground mine workings; synonymous with a tunnel (contrast with shaft).
Advance premium forward: Forward contract offering a constant contango throughout contract life; similar to flat rate forward and stabilized contango.

Agglomeration: The practice of adding lime or cement to ore placed on the leach pad to bind clay material together and enhance permeability and recoveries.

American style: (Option) that can be exercised at any stage during its life, in other words at or before expiration date. Contrast European style.

Annual report: The formal financial statement issued yearly by a corporation. The annual report shows assets, liabilities, revenues, expenses and earnings - how the company stood at the close of the business year, how it fared profit-wise during the year

Asian options: A history-dependent option where the outcome is not only reliant on whether or not the option is in-the-money at expiry, but also depends on the average price of the underlying throughout the option life. They are used the underlying price

Ask: the price at which a dealer offers to sell.

Assay: a test to ascertain the fineness and weight of a precious metal.

Asset-or-nothing calls (puts): History-independent exotic options which have no income if the price of the underlying at expiry is below (above) the strike price.

Assets: Everything a corporation owns or that is due to it: cash, investments, money due it, materials and inventories, which are called current assets; buildings and machinery, which are known as fixed assets; and patents and goodwill, called intangible

At-the-money option: An option with a strike price equal to that of the current price of the underlying.

Auditor’s report: Often called the accountant’s opinion, it is the statement of the accounting firm’s work and its opinion of the corporation’s financial statements, especially if they conform to the normal and generally accepted practices of accountancy

Average strike options: Asian options where the income depends on an average strike price rather than an average underlying asset price.

Backfill: The practice of placing waste in open pits or underground voids when mining has ceased; employed to avoid creating waste dumps on the surface and for stability underground to prevent collapse. It also refers to the material itself.
Backwardation: A market situation where the spot price trades at a premium to the forward price. Opposite of contango.

Balance sheet: A condensed financial statement showing the nature and amount of a company’s assets, liabilities and capital on a given date.

Barrier options: Unlike standard European options where the income depends only on the price of the underlying at expiration, barrier options are of the price of the underlying during the life of the option and whether that price breaches some predetermin

Bear: Someone who believes the market will decline.

Bear market: A declining market.

Bid: the price at which a dealer is willing to buy.

Binary options: Unlike standard options which have a constant income, binary options have variable (usually all or nothing) pay backs depending on whether or not the price of the underlying meets some pre-agreed condition. Binary options can be either his

BIS: Bank for International Settlements

Block: A large holding or transaction of stock, often 10,000 shares or more.

Boiler room: an enterprise that uses high pressure sales tactics, false or misleading information, and scare tactics, generally over the telephone, to sell overpriced or worthless investments to unsophisticated investors.

Bond: Evidence of a debt on which the issuing company promises to pay the bondholders a specified amount of interest for a specified length of time, and to repay the loan on the expiration date.

Bonds: Means of raising debt through the capital markets. See also Gold-Backed Bonds.

Boston options: See Break forward options.

Break forward options: Similar to the standard call option, except that it has no initial cost.

Broker: An agent who handles the public’s orders to buy and sell securities, commodities or other property in exchange for a commission charged for the service.

Bull: Someone who believes the market will rise.

Bull market: A rising market.

Bullion: precious metals in the form of bars that are at least 99.5% pure.

Bullion Bank: a high credit bank that can borrow gold from central banks to lend to the public.

By-product: A secondary metal or commodity that can be extracted as part of or along with the primary ore and sold profitably.

Call: the right, but not an obligation, to buy a commodity or a financial security on a specified date in the future at a predetermined (strike) price.

Capital gain or capital loss: Profit or loss from the sale of a capital asset.

Carbon-in-leach (CIL): A gold recovery technique in which cyanide is used to place gold in solution and the gold is subsequently adsorbed onto carbon in a simultaneous process. The carbon is removed with the gold for further refining.

Carbon-in-pulp (CIP): A gold recovery process similar to carbon-in-leach in which cyanide is used to place gold in solution. Then the gold-bearing solution is adsorbed onto carbon pulp in a subsequent sequential process.

Cash flow: Reported net income of a corporation plus amounts charged off for depreciation, depletion, amortization, and extraordinary charges to reserves.

Cash sale: A transaction on the floor of the stock exchange that calls for delivery of the securities the same day.

Cash-or-nothing calls (puts): The simplest, history-independent binary options which have no pay out if the price of the underlying is below (above) the strike price at expiry. They yield a constant sum if the price of the underlying is above (below) the

CBOT: The Chicago Board of Trade

CCA: Comex Clearing Association

CFTC: Commodity Futures Trading Commission, the futures and options watch-dog.

Chooser options: An option bought and paid for immediately but after an agreed time, the buyer can elect whether the option is to be a put or call with an equal strike price and equal remaining time to expiry. The chosen put or call is a standard European

Collars: Options which have the same pay out as the standard call except that the upside is not unlimited. It is subject to a maximum. The option buyer foregoes any further income above this maximum.

COMEX: The Commodity Exchange in New York. Merged with New York Mercantile Exchange (NYMEX).

Commercial production: An accounting designation that refers to an operation running at its anticipated capacity usually for a consecutive 30-day period.

Commission broker: An agent who executes the public’s orders for the purchase or sale of securities or commodities.

Common stock: Securities that represent an ownership interest in a corporation. If the company has also issued preferred stock, both common and preferred have ownership rights. Common stockholders assume more risk, but usually get more control and could

Complex choosers: Similar to plain chooser options except that either the put/call strike prices or the put/call time to expiry (or both) are not equal.

Compound options: These are options on options. The underlying asset is an option rather than a tangible commodity or security. Valuation of the option is complicated by the fact that two expiry dates must be accounted for: the time to expiration of the compound and the time to expiration of the underlying option.

Concentrate: Ore that has been upgraded through various processes to remove waste and increase the metal content subsequent to further refining.

Contango: A market situation where the spot price is lower than the forward quotation; the differential representing the carrying (financing) costs and prevailing interest rates. Opposite of backwardation.

Contract: Basic unit of a derivative product.

Contract-specified price: The delivery price determined when a contract is signed. It can be a fixed price or a base price escalated according to a given formula.

Correction: a decline in prices following a rise in a market.

Cost curve: Graphical representation of the costs of producing a metal for an entire primary industry. Usually cumulative output expressed in percent plotted against unit operating costs.

Coupon: Annual interest rate associated with capital market bond issues.

Crown pillar: A thick layer of rock (typically > 50 m) purposely left in place between underground mine workings and the surface above to prevent cave-ins.

Crushing circuit: A technique of mechanically treating ore to break it into finer-sized fractions for better recovery using additional processing.

Current assets: Those assets of a company that are reasonably expected to be realized in cash, sold or consumed during one year. These include cash, government bonds, receivables and money due usually within one year, as well as inventories.

Current liabilities: Money owed and payable by a company, usually within one year.

Cutoff grade: The lowest grade, in percent yield, of ore at a minimum specified thickness that can be mined at specified cost.

Cut-off grade: The minimum economically extractable grade determined by a given metal price assumption; varies ore body to ore body.

Cyanide: Usually refers to sodium cyanide solution used to extract gold and/or silver from ore through dissolution.

Delayed opening: The postponement of trading of an issue on a stock exchange beyond the normal opening of a day’s trading because of specific market conditions, such as an imbalance of buyers and sellers or corporate news that needs time to circulate.

Delta hedging: The probability of an option being exercised against the holder, with changes in the spot price relative to the option strike price.

Delta: A measure of the instantaneous rate of change in the value of an option for a one-unit change in the price of the underlying commodity or asset.

Derivative (instrument): A financial instrument or paper product which has a value based on an underlying asset.

Development (underground): Categorized as infrastructure excavations such as access tunnels that are equipped with services in support of mining; associated costs are usually capitalized.

Development drilling: Drilling done to determine more precisely size, grade, and configuration of an ore deposit subsequent to the time the determination is made that the deposit can be commercially developed.

Dilution: Waste material that cannot be avoided during the underground mining process and is subsequently sent for processing along with ore thereby lowering the overall grade of the material.

Direct cash cost: The complete expense of extracting a metal or mineral that includes mining, processing, and mine site G&A; does not include production taxes and royalties; compare total cash costs.

Diversification: Spreading investments among different types of securities and various companies in different fields.

Dividend: The payment designated by the board of directors to be distributed pro rata among the shares outstanding.

Doré: A bar of precious metal produced at mine site refineries. Usually consists of gold and silver. It is sent to commercial refineries for further purification and metal separation.

Down-and-in calls: A barrier option where the call is paid for up front but not received until the knock-in barrier is reached. See also up-and-in calls.

Down-and-in puts: A barrier option where the put is paid for up front but not received until the knock-in barrier is reached. See also up-and-in puts.

Down-and-in puts: A barrier option where the standard calls are paid for and exist until such time as the price of the underlying falls below a predetermined barrier after which the options cease to exist.

Down-and-out puts: A barrier option where the standard puts are paid for and exist until such time as the price of the underlying falls below the predetermined barrier, after which the options cease to exist.

Earnings report: A statement, also called an income statement, issued by a company showing its earnings or losses over a given period. The earnings report lists the income earned, expenses and the net result.

Electrowinning: an electrochemical process used to recover gold and other metals from solution in the leaching of ores and concentrates.

Enterprise value (EV): Calculated as market capitalization and net debt combined.

Equity: The ownership interest of common and preferred stockholders in a company.

European style: An option that can only be exercised on the date of expiry.

Exchange options (1): An option offered by an exchange. It is a standard contract subject to the rules and regulations of the governing exchange. The COMEX option offers the buyer a COMEX futures contract should the option be exercised.

Exchange options (2): An exotic option which allows the holder to exchange one underlying asset for another.

Exercising an option: The option purchaser holds the writer (seller) of an option to the agreed contract.

Exotic options: Generic term for the more sophisticated option strategy which has features over and above the basic contracts.

Expiry date: The date on which a derivative product expires or ceases to exist. Exchange products have set expiry dates. OTC expiry dates are agreed between the principals.

Exploration drilling: Drilling done in search of new mineral deposits, on extensions of known ore deposits, or at the location of a discovery up to the time when the company decides that sufficient ore reserves are present to justify commercial exploitat

Explosive options: See knock-out options

Face value: The value of a bond that appears on the face of the bond, unless the value is otherwise specified by the issuing company.

Feasibility study: An examination of a project’s economic viability that utilizes a detailed mining plan applied to a reserve base.

Fine ounce: a troy ounce of 99.5% pure gold.

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