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Why Warrants of Gold/Silver Companies Outperformed Gold/Silver So Dramatically in 2009

Commodities / Gold & Silver Stocks Jan 18, 2010 - 04:22 PM GMT

By: Lorimer_Wilson


Best Financial Markets Analysis ArticleWe are in the eye of the storm and when the other side of the vortex engulfs us gold and silver will increase considerably, their associated stocks will go up substantially and their warrants, where available, will escalate dramatically. They did so in 2009 (see below) and will most likely do so again in 2010. Does your portfolio properly reflect the opportunities that will continue to present themselves in 2010 and beyond?

All you need do is:
1.) invest in the stocks of the companies that mine gold and silver and/or in the royalty companies that buy the gold and silver from mining companies at pre-determined fixed prices or, better yet, and wherever possible,
2.) purchase certain of the long-term warrants offered by some of the gold and silver mining and royalty companies as a means of doubling-up (at least) on the returns they provide.

Such mega returns will be realized in the future if one starts today to prepare for that day. All it is going to take is an environment in which the following factors come together to some degree with high gold and silver prices and some trading mania :

a) a declining U.S. dollar,
b) rampant inflation (or fear thereof),
c) high interest rates,
d) ongoing financial instability,
e) further economic turmoil and
f) occasional acts of terrorism.

Most of the above factors materialized to a greater or lesser degree in 2009 and brought about major increases in all gold and silver sectors. What can we expect for 2010? More of the same – even considerably more!

Why Buy Gold and/or Silver Mining and Royalty Stocks instead of Physical Gold and/or Silver?

If gold, for example, 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 $600/oz. the gross profit margin of gold mining companies would be 40.0%. If 2 years from now, however, gold were to increase to $2,000 and the cost of production were to increase by only 20% to  $720/oz. then the mining companies’ gross profit margins would have gone up from $400/oz. to $1280/oz. or 220%! Such increased company profits should continue to be reflected in the price of their stocks and warrants (where available) as already evidenced below.

In 2009 gold bullion went up 24%, in U.S. dollar terms, while:

a) Gold Miners Index (GDM) and its ETF proxy went up 36.4%, i.e. 1.5 times that of gold 
b) HUI went up 42.2%, i.e. 1.75 times that of gold
c) Gold and Silver Companies Index (GSCI) went up 84.5%, i.e. 3.5 times that of gold

The above statistics clearly show that most gold bugs and gold and silver investors/speculators were misguided in focusing on gold bullion. It was not where the major profits were realized in 2009 - not by a long shot!
Why Buy Gold and/or Silver Mining and Royalty Warrants instead of other Gold Investment Alternatives?

In 2009 the long term warrants of the 22 companies in the Precious Metals Warrants Index (PMWI) went up 139.7%, i.e.

    i) 5.8 times that of gold and
   ii) 3.8 times that of the GDM
   iii) 3.3 times that of the HUI
   iv) 1.65 times that of the GSCI

Such outstanding return potential as outlined above is all the more reason to do your homework and buy the right long-term warrants (a minimum of 24 months duration) associated with the right gold and silver mining and/or royalty companies at today’s undervalued prices.

Due diligence should determine those companies with the right mix of capable management, strong financing, major resources and geographically and politically well-located properties coupled with those warrants with high leverage/time values based on your anticipated stock price appreciation of each company.

Investors who have been around for awhile will remember the slogan “Double your pleasure, double your fun.”  Perhaps the slogan for 2010 should be “Double your knowledge, double your profits – with gold and silver mining/royalty company stocks and/or warrants!”
(Rather than name the companies included in the Gold and Silver Companies Index (GSCI), the Precious Metals Warrant Index (PMWI), the Commodity Company Index (CCI) or the Commodity Companies with Warrants Index (CCWI) please visit my site and look under the "Warrants/LEAPS/Options" section for articles on "GSCI/PMWI Constituent Companies" and “CCI/CCWI Constituent Companies” for such information.)

Lorimer Wilson is Editor of (F.A.S.T.) and (Money, Monnee, Munknee!) and an economic analyst and financial writer. He is also a frequent contributor to this site and can be reached at"

© 2010 Copyright Lorimer Wilson- All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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