Gold prices have been fairly stagnant lately, but savvy investors are still making money. AngloGold Ashanti (NYSE:AU) is rewarding its investors today for taking some risk.

Gold prices may not be moving by leaps and bounds today, but savvy gold investors are seeing their stakes make a nice move.

I have always told investors if they can handle the extra risk, investing in the leading gold miners is a surefire strategy to leverage the gains made in the gold market. Today’s action from AngloGold Ashanti (NYSE:AU) proves the theory is valid.

Shares of the South African gold miner are up by about 5% after the company announced its second quarter was a record breaker. Thanks to increased production efficiency and a boost in gold prices, AngloGold increased its Q2 earnings by 11% to $167 million, or $0.47 per share.

In all, the company pulled 1.102Moz of gold from the ground during the last three months with an average cost of $472 per ounce. During last year’s corresponding quarter, the company managed to extract 1.103Moz.

While these figures prove AngloGold is doing things right and is well managed, an earnings report does little to show an investor the risk involved in taking a stake in the operation.

Gold mining, especially international gold mining, is risky business. I could list dozens of risk factors for the company, but will muzzle myself to just the top priorities.

First, and most obvious, is AngloGold’s exposure to fluctuating gold prices. While the spot market has been relatively quiet over the last two months, we all know that can change with any macroeconomic fluctuation.

While all gold miners hedge their exposure to the variability of the spot market to some degree, investors need to be aware of just how much the company’s profitability is affected by fluctuations.

Buying safety

With a 100% hedge, changes in spot prices have no impact. Any figure less than that, however, and earnings stand to move up or down, often drastically, with the market’s whims.

AngloGold is working on reducing its hedges to increase its exposure to what it obviously feels is a bullish tendency for the spot price. As of today’s report, the company’s gold hedge commitment is now 4.47Moz, down from 5.84Moz at the end of the first quarter.

According to the company’s CEO, Mark Cutifani, “The market fundamentals are extremely robust for gold, which supported our decision move aggressively sooner rather than later, to ensure we maximize our exposure to spot prices.”

Investors with the same belief that gold prices are on the rise, would back up their opinion by investing in the company.

Another risk for the company is its exposure to international currency markets. With mining operations all over the world, major moves in the world’s currencies could spell volatility for AngloGold’s earnings. With gold prices denominated in American dollars, a weak greenback would spell stronger gold prices, but could have detrimental impacts on some of the company’s international operations.

With several countries ready to “dump” the dollar in exchange for a basket of world currencies, there is some higher-than-average currency risk with AngloGold that I do not feel is reflected in share price. Fortunately, because its product is considered the ultimate currency hedge, the exposure is limited.

Finally, investors need to be aware of an entirely unpredictable risk factor, mine safety. In just the last three months, AngloGold lost eight workers to mining accidents. These deaths significantly reduce production and increase costs.

While we hope there are never any accidents, investors must be aware that any serious incident could be detrimental to share price.

As I said, there are plenty of other risk factors, but it is important to remember the markets reward us for risk.

If you are bullish on gold and want a shot at leveraging a surge in the commodity’s price, a gold miner is a great way to do it. Even with all the risks noted above, AngloGold is one of the best and most popular ways to enter the game.

Source: AngloGold Ashanti: Getting Paid for Risk