Gold and Silver investing


Gold and Silver investing versus investing in equities. People tend to dwell on equity investment returns, individual stocks rather than Gold and Silver investing.

gold-and-silver-investing
Much is known about the Nasdaq 100, and the FAANGs (Facebook, Amazon, Apple, Netflix, Google (Alphabet), famous for the impressive growth they have shown in recent years, with each member more than doubling over the past five years. Even after a correction in September they are riding high in 2020.

Gold and Silver investing

Much less has been said about the gold and silver mining sector, which has outperformed the US technology benchmark at times this year (as much as 50%). We will come back to the fate of US technology stocks in a later blog.

When do gold miners go up in price?

One author of a piece I read recently, suggests that, “ In short, when the key central banks become Keynesian, investors should buy gold and gold miners; when central banks stop being Keynesian, investors should sell them.”

For details on “what is Keynesian economics” have a look at the International Monetary Fund.

Now, you need to be looking at more than just one economy to measure this – I would suggest pick a few European economies such as the UK, Germany alongside Japan, Canada and the US.

So what is the difference between Miners of Gold and Silver and the assets themselves? Apart from the obvious, one is physical Gold and the other is digging it up, what else can we establish:

  • Gold-mining equities go up and down with markets and sentiment. When markets are buoyant so they tend to be, although there can be exceptions such as 2020 where markets have generally gone down, and miners have done well on the back of the fact that they continue to operate normally and have a great demand. Will this lack of correlation with markets continue?
  • Both miners and physical Gold are volatile! However, as mining equities do normally tend to follow the markets up and down, they normally should not be used to diversify a portfolio against a bear market. However, physical Gold normally can be used to diversify against the markets.
  • Since the mid-80s the gold price has risen by a multiple of five (hundreds of percent). while the goldminer index has risen by a multiple of two (ex-dividends).

Linking back to the Keynesian argument, “Gold miners are volatile assets that tend to outperform gold in Keynesian times, but do poorly when policy is focused on preserving savings.” Quote taken from “Incrementum”  Written by Ronal-Peter Stoeferle & Mark J. Valek.

How should you value mining equities?

Valuations of mining equities, whether they be Gold and Silver investing, gold-mining, silver, copper, or even oil are essentially a function of two criteria, namely:

1) The price of the raw material, that in this case is Gold and Silver investing.

2) The market rate at which these companies borrow.

So should I buy Miners of Gold, or Gold itself?

Probably you should hold both in current times, physical gold as a hedge to the risk and volatility that we have seen throughout the coronavirus pandemic to date which is likely to continue for some time. Gold miners will make greater profits and are meeting a demand currently, although be aware that both of these elements are volatile and are part of a portfolio’s “risky” allocation.

Still, a word of caution is advisable. Gold miners are a volatile asset and they should not be bought aggressively when they are overbought versus gold. Today, such a situation exists. Perhaps buying miners now is after the horse has bolted! You could even argue that you might want to take some of any profits you already have in miners. However, this decision has to be yours.

What did we invest in?

Our own committee invested in gold in 2019, and miners, and we recently reduced some of our exposure (October 2020) but they have resulted in portfolio outperformance. Past performance is not a useful guide to future performance and cannot be guaranteed.

Conclusion

Is Gold and silver assets in demand at the moment?  Yes, and you should not be ignoring them. Physical assets appear to be holding up well and acting as a balance to the marker mayhem we have seen in 2020.

The views expressed in this article are not to be construed as personal advice. You should contact a qualified and ideally regulated adviser in order to obtain up to date personal advice with regard to your own personal circumstances. If you do not then you are acting under your own authority and deemed “execution only”. The author does not accept any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Where this article is dated then it is based on legislation as of the date. Legislation changes but articles are rarely updated, although sometimes a new article is written; so, please check for later articles or changes in legislation on official government websites, as this article should not be relied on in isolation.

This article was republished on 27th October 2020

“About

James Pearcy-Caldwell

I have lived in various countries, but always remained firmly attached to the good old UK. My only goal is to take the experience and insider knowledge that I have, and be transparent with people so they understand the impact of their decisions.

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