Stay Safe With Gold And Silver Part 2, Stocks Or Bullion?

May 9th, 2012
in gold, silver, miners

panning-for-goldSMALLIn my last article, I discussed investing in numismatics and bullion coins.  Now, let's look at miner stocks vs. gold and silver bullion in my ongoing quest to find the best way to stay safe, and still profit during difficult times.

According to an article by Lawrence Williams on Mineweb, after years of selling, for the last 2 years the banks are buying gold bullion again.


"According to the latest IMF statistics at least 12 countries are known to have increased their gold reserves in March indicating the continuation of a trend now going back more than two years, and one which has been on its own a substantial supporter of the higher gold prices seen over the period.  Overall Central Banks appear to have purchased no less than 58 tonnes in the month, which could suggest an acceleration in their increases in holdings if buying at this rate continues throughout the year."

Follow up:

Appreciation: GLD has the clear advantage on this Yahoo chart for the last year.  GLD (SPDR Gold Shares) and SLV (i Shares Silver Trust) try to track the price of gold and silver and charge a small fee.  GDX (Market Vectors Gold Miners ETF) and SIL (Global X Silver Miners ETF) are a basket of metals stocks, and don't necessarily track the price of gold and silver.  GDX and SIL offer diversity of miners, but there is the possibility that these companies may go out of business or not make a profit - negatively affecting the price of these ETF's.  This could cause their value to go down, even if the metals rise in price.  As you can see from the chart GDX has not followed GLD.  But, remember, stocks can offer leverage in both directions.

GLD and SLV are not the same as physically holding your own metal.  You can trade both on the stock exchange, but you can't take possession of the physical metal.  The gold and silver is held in the trust and backs your shares.  You can't even see the metal,  so you must trust that it is where they say it is.  Should the trusts go bankrupt, or a Goldfinger moment happens and the holdings become radioactive, or it gets stolen, or isn't even there to begin with,  you would be out of luck.  The safest way to own gold or silver is to have it in your possession!  You can buy bars or you can buy coins like the American Eagle that are almost pure metal.

And, you can always buy individual mining stocks. However, tracking these stocks can be time consuming. In a volatile market, you must follow them closely.  Profit margins and management vary widely from company to company causing vast differences in equity prices.  Here are 6 of my favorite gold miners. Historically, they've performed well, most have low cost production, and good management.  The price of the metal (gold) is the same for all of them, but their bottom lines can be very different.

AEM Agnicio-Eagle Mines Ltd.

GG Goldcorp Inc.

KGC Kinross Gold Corp.

EGO Eldorado Gold Corp.

NGD New Gold Inc.

NAK Northern Dynasty Minerals Ltd. (This company is still in start up phase and not producing metals yet)

Even though the price of gold is the same for all of them, there is almost a 25% difference between the best and worst performers year to date.  Those that want to work at it,  can find it very profitable.  Those that want a hands off approach for stocks should go for either GDX, which holds the more established companies, or GDXJ that owns junior miners and carries more investment risk.

Here are 5 of my favorite silver stocks.

AG First Majestic Silver Corp.

SVM Silvercorp Metals Inc.

EXK Endeavour Silver Corp.

SLW Silver Wheaton Corp.

SSRI Silver Standard Resources Inc.

Not as much difference between the top and bottom performers, but still about 15%.

I would like to point out that bullion does not generate income like the stocks.  There is a way to invest that can generate a cash flow for bullion or stocks.  Buying or selling options can generate profits, or losses!  See our articles on options strategies.


First, in the current world political atmosphere, physical gold heads my list of safe bets, however, it is not the easiest to own.  Finding a reputable dealer, paying the commissions, and transfering your metal to a safe place can be frustrating and time consuming.  And by the way, if gold restrictions are ever inacted, most likely your gold will not be safe in a bank vault.  In 1933 Roosevelt declared a banking holiday, confiscated gold and raided safety deposit boxes.

My second choice, GLD, SLV or equivilent gold and silver ETF's.  These are based on gold or silver bullion held by the fund in a secure location, usually a bank in London or New York, and they are very liquid.

The third choice, and not necessarily a bad choice, is stocks of the miners.  This offers you leverage, ease of trading, and although it doesn't always follow the metal exactly, it is joined at the hip.  If you go this route, I would recommend diversity.  Either do a basket of gold or silver stocks like GDX or SIL, or pick at least 3 or 4 stocks on your own.




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1 comment

  1. Silverspice says :

    Silver Wheaton is one of my faves, too. However, for your readers, perhaps you should mention it is a streamer, not a miner. They are currently funding new copper mines in order to purchase silver at a discount, and, of course, have existing contracts with many miners.
    Since the metals are falling, this is a particularly good time to look for an entry into Silver Wheaton.



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