Mining Stocks vs Physical Gold and Silver - Mike Maloney

WealthCycles.com
MARCH 31, 2011

One of the questions we frequently get from our readers is, “What about mining stocks? If gold and silver are a good investment, wouldn’t mining stocks be a good investment as well?”

In this informative video blog, precious metals expert and financial educator Michael Maloney discusses his own study of mining stocks and how their performance compares with that of physical gold and silver over time.

“I started investing in gold and silver back in 2002, when gold was about $325 an ounce,” Mike recalls. “By April 2003, I was all in. I had discovered silver. I bought a whole bunch of mining stocks—more than half my portfolio was mining stocks. And I was lucky enough to catch the last true up-wave on mining stocks.”

But over the long haul, the numbers paint a different picture. A comparison of the Barron’s Gold Mining Index, which tracks the best of the gold mining stocks, all the way back to the beginning of the first gold bull market in 1971 shows that physical gold has performed mining stocks by 300%.

“I’m not saying you shouldn’t be invested in stocks,” Mike says. “I’m saying that your value, your money that you want to make safe, store it in physical precious metals.”

“If you have some capital that you want to risk and try and gain leverage and increase your winnings, you can put some into mining stocks,” he says. “I believe it is the second-best bet. You can have huge winnings, but it is a bet; it is a gamble.”

If you decide to invest in mining stocks, be sure to seek professional advice, Mike says. “The professionals that analyze all these mining companies and pick the stocks have a track record of far outperforming the average stock indexes.” Mike recommends David Morgan, at silver-investor.com, for silver miners; Doug Casey or John Doody for gold miners.

“The mining stocks introduce risk into something [physical gold and silver] that is a sure thing, and on the average will outperform the mining stocks anyway,” Mike says. “When you have a mining stock, you can have a mine collapse, the EPA can shut it down, there can be a strike—there’s all sorts of risks that you introduce.

“My strategy was to go with the sure thing, because I have never seen anything with the potential for gain that gold and silver have, and as favorable a risk-reward ratio, with the risks being so low, and the rewards being so high.”

Click here for more of our thoughts on bullion versus mining stocks.

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