Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
VR and Gaming Becomes the Metaverse - 7th Dec 21
How to Read Your Smart Meter - Economy 7, Day and Night Rate Readings SMETS2 EDF - 7th Dec 21
For Profit or for Loss: 4 Tips for Selling ASX Shares - 7th Dec 21
INTEL Bargain Teck Stocks Trading at 15.5% Discount Sale - 7th Dec 21
US Bonds Yield Curve is not currently an inflationist’s friend - 7th Dec 21
Omicron COVID Variant-Possible Strong Stock Market INDU & TRAN Rally - 7th Dec 21
The New Tech That Could Take Tesla To $2 Trillion - 7th Dec 21
S&P 500 – Is a 5% Correction Enough? - 6th Dec 21
Global Stock Markets It’s Do-Or-Die Time - 6th Dec 21
Hawks Triumph, Doves Lose, Gold Bulls Cry! - 6th Dec 21
How Stock Investors Can Cash in on President Biden’s new Climate Plan - 6th Dec 21
The Lithium Tech That Could Send The EV Boom Into Overdrive - 6th Dec 21
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
GOLD HAS LOTS OF POTENTIAL DOWNSIDE - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Investing vs. Speculating in Gold and Silver Stocks

Commodities / Gold & Silver Stocks Dec 21, 2011 - 03:28 AM GMT

By: Jordan_Roy_Byrne

Commodities

One thing that is intriguing about the precious metals sector is the vast composition of the companies in the sector. The entire equity sector can be divided in so many forms and ways. We can divide the gold and silver stocks, the producers and non producers, the explorers and the developers, the royalty companies and non-royalty companies as well as those making money and those not making money. To make money in this sector one really needs to have a plan and know what they are doing. Specifically, one needs to define an investment and a speculation.


Though the sector itself is risky, there are still numerous companies that can be defined as an investment. An investment is something which you receive a return on your money and a return of your money. Therefore we are looking for companies that are making money and have the reasonable ability to grow cash flow and earnings. The royalty companies and large and senior producers fit this bill. An investment in GDX or a gold mutual fund fit this category. Mid-tier and smaller producers with experienced management, a track record and a strong financial position can be categorized as investments.

Anything and everything else falls into the speculation category. How about a large developer with 10 M oz Au? It is a speculation. No one knows if the owner will ever be acquired, much less if the project will ever go into production. Even if a junior explorer or junior developer are trading at $10/oz in the ground, it still qualifies as a speculation.

Why are we talking about this?

Many gold bulls were hurt in 2007-2008 and again this year as they forgot that most of the companies in this sector as speculations. They forgot that shares can fall tremendously, even as the metals remain firm or even rise. You cannot just sit in your juniors and think they will be up 50-fold by the end of this bull market. After all, you should know by now that most juniors will fail and even fail in this historic bull market.

This year provides a clear example of the difference between speculating and investing. GDX is down 14% while GDXJ is down 33% while the CDNX is down 38%.

Going forward, one has to have a plan that distinguishes between investing and speculating. How much of your portfolio should be in Gold-related investments and how much should be in speculations?

Obviously, we are coming out of a difficult year and those who held too many speculations will feel jaded. They will feel that the juniors will never gain or that gold stocks will always underperform the metal. The result of this year will cloud their thinking for 2012 and beyond. On the other hand, the real professionals were cautious this year. They held high cash positions and focused most of their risk-capital on investments and not speculations. Since the market is likely to make a major low within potentially days or weeks, it may be time to consider some of the speculations, rather than become really defensive and only sit in a few large cap stocks.

Your job, Joe Investor is to figure out the right balance for your portfolio and then shift accordingly with market conditions. Your investments should earn you a return of your money and a return on your money. Whether that is 80% or 50% of your portfolio depends on your risk tolerance, time horizon and other factors. In our premium service, we look for both investments and speculations in this sector that can make you money. We invite you to learn more about our service.

Good Luck!

Jordan Roy-Byrne, CMT
Trendsman@Trendsman.com
Subscription Service

Trendsman” is an affiliate member of the Market Technicians Association (MTA) and is enrolled in their CMT Program, which certifies professionals in the field of technical analysis. He will be taking the final exam in Spring 07. Trendsman focuses on technical analysis but analyzes fundamentals and investor psychology in tandem with the charts. He credits his success to an immense love of the markets and an insatiable thirst for knowledge and profits.


© 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