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3 Gold Stocks With Potential

Stocks in this article: NEMGOLDAU

Editor's note: As part of our partnership with PBS's Nightly Business Report, TheStreet's Alix Steel will appear on NBR Tuesday (check local listings) to discuss investing in gold mining companies.

NEW YORK ( TheStreet) -- Gold mining stocks are risky but can offer leverage to gold prices. There are three gold companies whose stories have recently changed, providing possible catalysts for the stocks.

First off, there are several issues to consider when buying gold miners.

As with any investment, they are risky and usually lead gold prices to the upside and downside. Find companies with strong production and reserve growth. Make sure they have good management and inventory supported by either buying smaller companies or by maintaining consistent production.

Word on the Street

As gold prices rise, gold companies can make more for every ounce of gold they produce, but their net profit depends on their cash costs -- how much it costs them to produce an ounce of gold. Those factors vary from company to company and are subject to currency issues, energy costs and geopolitical factors.

Vote: Where will gold prices finish in 2011?

Also make sure the gold company you are betting on is un-hedged and has growth potential. There is a finite supply of gold in the ground. The above ground supply is currently 160,000 tons and in the third quarter 2010 mine supply grew 3% to 702 tons, according to the World Gold Council. Companies, in order to meet growing demand, either have to invest in an active exploration unit in hopes of striking gold, or have enough cash to buy a smaller company.

Finding a good pick can be like looking for a gold coin in a haystack. Here are three options.

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