Are Precious Metal Stocks Worth The Risk?

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#1 Tue, Nov 8, 2011 - 2:17pm
obiwan
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Are Precious Metal Stocks Worth The Risk?

This topic was brought up on another PM forum an I want to bring the discussion here.

ARE MINING STOCKS WORTH THE RISKS IN OUR INCREASINGLY CHAOTIC WORLD? I know we all own physical PM in addition to our PM stocks, but should we seriously consider selling our paper stocks and go "all in" physical?

Consider this; If the CME would have in fact raised margins as they suggested in their initial announcement, our paper PM stocks could have been massacred. And what about Government computer algorithms that are keeping a lid on our PM stocks?

I for one am seriously thinking of waiting for an up day in the metals and selling and rolling it all into physical.

Let the discussion begin!

Edited by: obiwan on Nov 8, 2014 - 5:06am
Tue, Nov 8, 2011 - 4:34pm
Dr Durden
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We don't ALL own PM stocks. I

We don't ALL own PM stocks. I own none for the very reasons you mention.

My gut tells me all those deep into miners will get taken to the cleaners once again. But this would coincide to a broad equity sell off. Who knows, maybe the SPX gets up and sprints to 1500 by the end of the year?

It seems to me the criminal elite knows the ship is going down and are doing whatever they can to keep it from plunging at a rapid rate. When EVERYONE is CONVINCED that everything will implode, crash, etc, etc....that's exactly when it probably wont. Slow moving train wreck, slow sinking ship, etc. That, with the occasional black swan to mark intermittent sentiment changes, seems to be the game plan.

Look at the GDX over the past 5 years and decide for yourself if it's bottomed and in a decided uptrend. When I look at it I see a slow chop down that coincides with a world-wide slowdown in the underlying production and demand for raw materials. To each their own.

And so what if the HFT's are capping it? Doesn't mean you can't play and turn some fiat in the short term on the volatility.

Got GIABO? "It's called the American dream, because you have to be asleep to believe it." ~George Carlin
Wed, Nov 9, 2011 - 11:16pm
rock collector
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Precious metals stocks - yes, worth the risk

I think PM stocks are worth the risk.
Yes. it's an arena with plenty of volatility and plenty of risk. There's nationalization, increased taxes, permitting issues, environmental issues, management problems etc.
I don't have enough wealth to only need to protect it which is what physical does best. Everyone should hold a portion of their assets in physical. I would like to grow my assets too. Over time, I think PM stocks will do that best.
IMO There's quite a few factors that support owning quality PM stocks in general.
Dollar debasement - money printing, it's just going to continue.
Gold and Silver prices will continue rising inversely to the dollar's downward trajectory.
Rises in PM prices goes pretty much straight to the miner's bottom line.
Earnings are almost certain to strongly rise for the better miners.
PEs will drop faster and faster and stock valuations will improve.
Better miners will add to their reserves and resource base.
Better miners will expand via exploration and increased production.

The world is awash with dollars. Other major currencies are being printed at rates above 10% too, so it's not just the dollar. Eventually, there will be a catalyst, some kind of event, that ignites a massive crisis of confidence in paper money. I believe it's already begun. Gold and silver being recognized as real money.



Thu, Nov 10, 2011 - 11:59am (Reply to #3)
obiwan
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Rock Collector, I agree with

Rock Collector,

I agree with all that you say. All these things have been true for the last couple of years in an environment where PM stock have lagged far behind. All the rational reasons far appreciation fall moot in a manipulated financial scheme.

Fri, Nov 11, 2011 - 3:52pm
Jasper Puddlemaker
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Not for everybody...

There are three reasons I own precious metal mining and exploration companies.

1) Leverage to metals prices. (Good companies are making a lot of money.)

2) Discovery potential. (High risk, high reward.)

3) Hedge against gold confiscation. (If you don't know what I mean, read your American history and see what happened to gold stocks when owning gold became illegal in the US.)

Those who try to argue "metals have done better than stocks" are simply not correct. My portfolio of companies has appreciated several hundred percent more than physical metals have during this 10-yr bull market. Stocks are not for everyone though; those who buy based on tips they get from chat rooms and blogs are likely to be taken to the cleaners. It takes an investment of time (research) and money (newsletters or a good broker) if one wants to be successful.

My opinion is that good gold and silver companies will provide solid returns as long as metals are in a bull market. They will be more volatile, but with the volatility comes opportunity.

Fri, Nov 11, 2011 - 4:57pm (Reply to #5)
Dr Durden
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Jasper Puddlemaker

Jasper Puddlemaker wrote:

Those who try to argue "metals have done better than stocks" are simply not correct. My portfolio of companies has appreciated several hundred percent more than physical metals have during this 10-yr bull market. Stocks are not for everyone though; those who buy based on tips they get from chat rooms and blogs are likely to be taken to the cleaners. It takes an investment of time (research) and money (newsletters or a good broker) if one wants to be successful.

Let me ask you, though...are you aggressively managing your portfolio? Hedging risk, in and out, setting up stops, etc? Or did you just kinda get in early and let it ride?

My plan is to take my remaining IRA cash and put maybe 30% into miners. But it's not an account I'd want to watch like a hawk. If that's what it takes to make the sector work for me, I suppose it's not for me in the long run.

Got GIABO? "It's called the American dream, because you have to be asleep to believe it." ~George Carlin
Fri, Nov 11, 2011 - 7:51pm (Reply to #6)
Jasper Puddlemaker
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I suppose I have tried every

I suppose I have tried every imaginable strategy over the years. In my case, the best returns have been from buying what I thought were the best companies when they were severely undervalued (2000-2002 & 2008-2009), hanging on through the ups and downs, then selling a particular stock when the story changes, when a better opportunity presents itself, or when the charts indicate we might be at a mid-term peak. Where I get into the most trouble (every time!) is when I try to time the short-term moves, or when I get caught up in the hype of a company that I would normally not have considered. Greed is my worst enemy!

Though I hate to admit it with all the newsletters, reading, and conferences I attend, the best returns in the last 3-4 years have come in the portfolio at the full-service brokerage I use, rather than in my discount-brokerage portfolio. I will always spend time on newsletters, research, technicals, etc., (can't help but do that), but in reality using a brokerage that has geologists, credit analysts, and other experts on staff is the best formula for success if one wants to be in the junior sector. I would probably do just as good or better if I would just follow their recommendations, and check in every couple of weeks to see if the recommendations have changed, but I just prefer to keep and eye on company updates and technicals on a daily basis.

Also, I think it is pretty hard to beat a good mutual fund; the Tocqueville Gold Fund run by John Hathaway has had incredible performance during this bull market. I'm not generally a fan of mutual funds, but I sure do like Hathaway's fund.

Different strategies for different people. We are all wired differently, and will achieve our best when we find out what works best for us as individuals. The idea above are what works best for me.

Fri, Nov 11, 2011 - 9:42pm
mdcromer
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My gut tells me. . .

Own physical gold (some), physical silver (lots), the means of self defense, a moderate amount of prep supplies and enough cash to pay the bills so I don't have to sell my G&S.

I just have a gut feeling that the entire paper system is going to fail, including the miners. . .

Fri, Nov 11, 2011 - 11:06pm (Reply to #8)
Jasper Puddlemaker
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RE: "gut feeling"...

"I just have a gut feeling that the entire paper system is going to fail, including the miners. . ."

What you are implying is the end of civilization; the end of resource producers, the end of transportation, the end of manufacturers, the end of commerce, the end of trade, etc.. Pretty unlikely unless triggered by a worldwide cataclysm (asteroid, pole shift, all-out nuclear war, etc.) If a collapse of that magnitude does occur our physical metals won't save us either. A collapse that extreme would send us into Mad Max for sure. Short of a worldwide cataclysm it just isn't likely that the entire "paper" system (including stock ownership) would just collapse and disappear. A restructuring will occur, but will be done in order to save the system from destruction. Those who are profiting most from the system are also the ones in position to ensure it continues.

That is how I see it anyway. We metals folks seem to be in two distinct camps -- those who believe it all goes down and Mad Max shows up, and those who do not believe it will go that far. I'm in the latter camp, but I do think it is prudent to have preps and plans in place in the event the former unfolds.

Mon, Nov 14, 2011 - 7:52pm (Reply to #9)
mdcromer
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Jasper Puddlemaker wrote: "I

Jasper Puddlemaker wrote:

"I just have a gut feeling that the entire paper system is going to fail, including the miners. . ."

What you are implying is the end of civilization; the end of resource producers, the end of transportation, the end of manufacturers, the end of commerce, the end of trade, etc..

I believe in the end of our financial system, not the end of our civilization.

Tue, Nov 15, 2011 - 9:43pm (Reply to #10)
Jasper Puddlemaker
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"I believe in the end of our

"I believe in the end of our financial system, not the end of our civilization."

Me too. Which is why I don't understand why people think companies that produce needed goods and services (including miners) will somehow be swept away into nothingness when the financial system goes down (and is replaced). Shares in companies do not represent paper promises; they represent ownership in a company.

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