Trading Gold stocks is a lot more risky than trading actual Gold !

The Hedge risk
First of all, as we've seen above, most Gold producers are short on Gold price, by having sold their future productions through (fixed price) advance sales, in an attempt to stabilize their annual revenues. As spot Gold price increase, they are at risk, as they have to deliver the gold at the set price, regardless of the current gold price at the time of delivery. Back in 1999, Ashanti, Cambior, and Centaur Mining companies were hit very hard by spot Gold price increases and fell into deep financial trouble.
Moreover, with advance sales at fixed prices, Gold producers do not benefit from market Gold price increases and their respective stock do not benefit from it, because investors know that current Gold prices have little effect on Gold producers annual revenues (and therefore profits).
It is estimated that about 2,700 Tons of gold have been hedged by Gold producers alone. That is more Gold than the total world mining production for a full year !

Volatility
Volatility of individual Gold mine stocks is a lot higher than the Gold price itself. Some insiders may be able to benefit from the «Buy low, Sell High» game, but it is usually not the case for average investor, as he has next to no way of knowing where individual stocks are at.

Other factors
Not only gold stock prices are based on current / expected value of spot Gold prices but also on many other factors next to impossible to evaluate or even appreciate by the individual investor. Exploration and Production costs, actual gold reserves of individual mines compared to estimated, Hedge position, company management, local political & tax issues, etc.

All in all, considering the potential capital gains on Gold itself, based on simple fundamental, verifiable issues related to Gold, there is little incentive for individual investor get into the trouble - and risks - of selecting (stock picking) individual gold stocks, or even Gold indices, as demonstrated above, over Gold itself.