Best of the Week
Most Popular
1. Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - P_Radomski_CFA
2.Fed Balance Sheet QE4EVER - Stock Market Trend Forecast Analysis - Nadeem_Walayat
3.UK House Prices, Immigration, and Population Growth Mega Trend Forecast - Part1 - Nadeem_Walayat
4.Gold and Silver Precious Metals Pot Pourri - Rambus_Chartology
5.The Exponential Stocks Bull Market - Nadeem_Walayat
6.Yield Curve Inversion and the Stock Market 2019 - Nadeem_Walayat
7.America's 30 Blocks of Holes - James_Quinn
8.US Presidential Cycle and Stock Market Trend 2019 - Nadeem_Walayat
9.Dear Stocks Bull Market: Happy 10 Year Anniversary! - Troy_Bombardia
10.Britain's Demographic Time Bomb Has Gone Off! - Nadeem_Walayat
Last 7 days
Stock Market Pause Should Extend - 21st April 19
Why Gold Has Been the Second Best Asset Class for the Last 20 Years - 21st April 19
Could Taxing the Rich Solve Income Inequality? - 21st April 19
Stock Market Euphoria Stunts Gold - 20th April 19
Is Political Partisanship Killing America? - 20th April 19
Trump - They Were All Lying - 20th April 19
The Global Economy Looks Disturbingly Like Japan Before Its “Lost Decade” - 19th April 19
Growing Bird of Paradise Strelitzia Plants, Pruning and Flower Guide Over 4 Years - 19th April 19
S&P 500’s Downward Reversal or Just Profit-Taking Action? - 18th April 19
US Stock Markets Setting Up For Increased Volatility - 18th April 19
Intel Corporation (INTC) Bullish Structure Favors More Upside - 18th April 19
Low New Zealand Inflation Rate Increases Chance of a Rate Cut - 18th April 19
Online Grocery Shopping Will Go Mainstream as Soon as This Year - 17th April 19
America Dancing On The Crumbling Precipice - 17th April 19
Watch The Financial Sector For The Next Stock Market Topping Pattern - 17th April 19
How Central Bank Gold Buying is Undermining the US Dollar - 17th April 19
Income-Generating Business - 17th April 19
INSOMNIA 64 Birmingham NEC Car Parking Info - 17th April 19
Trump May Regret His Fed Takeover Attempt - 16th April 19
Downside Risk in Gold & Gold Stocks - 16th April 19
Stock Market Melt-Up or Roll Over?…A Look At Two Scenarios - 16th April 19
Is the Stock Market Making a Head and Shoulders Topping Pattern? - 16th April 19
Will Powell’s Dovish Turn Support Gold? - 15th April 19
If History Is Any Indication, Stocks Should Rally Until the Fall of 2020 - 15th April 19
Stocks Get Closer to Last Year’s Record High - 15th April 19
Oil Price May Be Setup For A Move Back to $50 - 15th April 19
Stock Market Ready For A Pause! - 15th April 19
Shopping for Bargain Souvenirs in Fethiye Tuesday Market - Turkey Holidays 2019 - 15th April 19
From US-Sino Talks to New Trade Wars, Weakening Global Economic Prospects - 14th April 19
Stock Market Indexes Race For The New All-Time High - 14th April 19
Why Gold Price Will “Just Explode… in the Blink of an Eye” - 14th April 19

Market Oracle FREE Newsletter

Top 10 AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Precious Metals v. Mining Stocks: What You Need to Know

Commodities / Gold and Silver Stocks 2017 Jan 26, 2017 - 03:47 PM GMT

By: MoneyMetals

Commodities

By David Smith : Most readers of this column own (or plan to own) physical precious metals – gold and silver, perhaps even some platinum or palladium. They may also own mining stocks.

But which category is "best"? It's like asking, "What's the most efficient exercise?" or "What's the best fishing lure?" Truth be known, it's really about what you wish to accomplish! Here is my considered opinion...


Precious Metals Offer Insurance First – Profit Second

One should strongly consider holding physical precious metals for "investment first, profit potential second."

The primary function of "metals in hand" is to help offset the possible loss of purchasing power that inflation or a changing business/regulatory climate might visit on a person's other asset classes, such as the broad stock market, real estate, collectibles, and certainly, bonds.

This last category appears to be ending a literal 30-year bull market, during which time interest rates declined (and bonds rose) to levels not seen in many decades.

(A change in the secular trend, to rising interest rates, would have severe ramifications for the value of bonds, whether or not they are held to maturity.)

A side advantage, common in India but not discussed in this country, is that gold and silver can be easily be "pawned" when a person might not have other options for a loan. Just like any item left in the pawn shop owner's care, precious metals can be redeemed when the loan has been paid off.

Indians have a much more nuanced – and relaxed – view about metals' ownership. Outlookindia.com takes the pulse about how its citizens deal with the idea of buying gold and silver, noting, "If you bought gold today and its price falls tomorrow, you don’t say, oh, wish I had not bought gold, I lost money. You just look at your gold and say, I have got 200 grams of gold. That’s it."

Mining Stocks Are Speculations

Mining stocks are an entirely different "investment animal." You're buying shares in companies who explore for and/or produce precious and base metals. Miners have many inherent risks to overcome, which the metal held in your hand, by virtue of having being refined, has already put behind it.

A miner's profit can be adversely affected by all sorts of variables – operational factors like oil prices, the cost of labor, local community support or lack thereof, government regulations, and even nationalization (theft) of a company's assets – which often takes place without compensation to the owners, let alone shareholders. A tailings dam collapse or accidental worker deaths can also affect the share price. Over the years, several such companies have seen theirs drop from multiple dollars each, to a fraction of that... or to zero.

Some companies bill themselves as "pure silver producers." The "purest" of these usually produce a fair amount of base metals – lead, copper and zinc – which are added to the profit mix to yield "equivalent silver ounces." Even the best-known examples may list 30-40% of their annual production in this non-silver category. A geologic fact is that silver veins tend to "pinch and swell," causing ore head grades, and hence the company's share price, to unexpectedly rise or fall.

A big argument for holding mining stocks is that because of their increased risk profile, they can be expected to gain at a greater percentage rate – perhaps several times as much – as do gold and silver. For a number of miners in 2016, that was certainly the case. Yet several of the best ones on the board also declined over 50% during last fall's inevitable correction to the strong uptrend... which you may have noticed was not the case with the price of the metals they produced.

For much of the last 20 years, during which time, precious metals rose by multiples of their early bull market price, mining stocks as a group actually underperformed. So, what's the point of taking on additional risk and doing considerably more work, just to find that you could have made a single metals' buy-and-hold decision – which performed better with less downside?

You should also answer these fundamental questions before deciding whether or not to include miners and metals in your investment mix. What are your financial goals? How much risk are you willing to take? How much time can you spend on the "care and maintenance" of your "garden" of stocks?

They can't simply be purchased and placed in a drawer somewhere. Here are just a few of real-life, high-to-low ranges, stated in U.S. dollars, of share prices for several well-run, profitable miners during the cyclical bear market lasting from mid-2011 to late-2015 – $19 down to $7; $10.30 to $0.28; $43 to $5.38; $13 to $1; $36 fell to $3.30.

And did I mention that scores of other companies either reverse-split 20 (or 100):1... or simply went bankrupt?

BGMI index vs. Gold

Why I Hold Mining Stocks and Why, Perhaps, You Should Not

Trading the mining sector is quite literally a job. I write reports, take mining tours, read hundreds of articles and evaluations on scores of companies – and trade mining stocks. But that's my choice. It's great when shares are rising to the sky, as was the case this past January to August. But it was NOT great when the bottom fell out into December.

I am willing to put up with these swings for the possibility of a few home runs, while often settling for base hits, along with the occasional "strike-out." Do you have the temperament, are you willing to put in the research, can you handle the risk, do you want to give up a lot of the time you could spend doing something else?

Perhaps you can answer "yes" to these questions. If not, or the questions aren't relevant to what you're trying to accomplish, then you should seriously consider keeping decision-making about the metals, relevant to your needs and goals.

Instead buy physical gold, silver, and maybe some palladium rounds. Store them in a safe space. Then go out and golf, fish...or spend quality time with your family. In the process, we hope you can achieve what David Morgan wishes for the subscribers to his newsletter at themorganreport.com at the close of each and every issue he pens – "Health above wealth; Wisdom above knowledge."

David Smith is Senior Analyst for TheMorganReport.com and a regular contributor to MoneyMetals.com. For the past 15 years, he has investigated precious metals’ mines and exploration sites in Argentina, Chile, Mexico, Bolivia, China, Canada, and the U.S. He shares his resource sector findings with readers, the media, and North American investment conference attendees.

© 2017 Money Metals - 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.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules