Can You Strike the Mother Lode with Mining Stocks?

Had you ever felt compelled to invest in Gold and Silver mining stocks instead of physical gold?

Let me share why I’m not a big fan of Gold or Silver mining stocks. I know you must be thinking why should he? He’s talking his book, he’s a bullion guy.

Ok I’ll except that thought, but in the next few lines I will share why I have never invested in such a product.

Here are my reasons.

First mining companies are not in the business of supporting the gold price. What I mean by that they are miners not gold investors. One must remember that when investing in a mining stock you are buying a balance sheet and the value of the stock is interpreted as an asset in a fiat currency. Let me define a fiat currency to clarify my explanation. Fiat money is a currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat money is derived from the relationship between the supply and demand rather than the value of the material the money is made of. Historically, most currencies were based on physical commodities like gold and silver, but fiat money is solely based on the faith of government issuing the currency.

I’m sure we all wish we were back in the day where you can cash in demand notes for physical gold and silver, because I don’t think anyone will disagree that any currency is safe to hold on to.

Mining companies look for financial support to finance their operations. So an investment in a mining company is not an investment in gold or silver, but an investment in a company that is in the business of operating a mine. Hence in the end, you are buying a balance sheet not a physical product. True the stock price might appreciate in a gold bull market, but historically not at the one-to-one ratio that you might enjoy if you own the physical product. In retrospect, in a flat gold market with a declining stock market, one has the potential to lose value on his or her investment.

There is a lot more to share on the comparisons of the two investments, but by now I think you get the picture.

Yes, I am talking my book but when currencies become devalued, or the government debt gets out of control,
which book do you think will be on the N Y Times bestseller list?