If gold were to escalate considerably in price (i.e. to $2,000, $3,000, or even more) in the next few years it would have a significantly positive impact on the profitability of the companies who mine it and the royalty companies that buy it from marginal producers.

For example, with gold priced at $1,000/oz., and the cost of production at perhaps $400/oz. the gross profit margin is 60.0%. If 2 years from now, however, gold has risen to $2,000 and the cost of production has increased by only 20% to $480/oz. then the mining companies’ gross profit margins will have gone up from $600/oz. to $1520/oz. or 153%!.

With such a dramatic increase in their operational profits one could reasonably expect that the share prices of such companies’ stocks would go up dramatically too. That, coupled with the fact that most gold and silver based stocks are still significantly below what they were at their highs back in 2007 would lead one to expect truly major increases in their stock prices.

That is the rationale for finding and investing in those gold and silver mining and/or royalty companies with the right mix of capable management, strong financing, major resources and geographically and politically well-located properties to reap the benefits of such a surge in the price of gold and silver.

Were the trend in appreciation of the large- and mid-cap producers versus gold remain constant at approximately 3 to 1 (as depicted above) such profits would be exceptional.

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