Gold Proxy Strategies: Physical Silver vs Gold Mining Stocks?

Discussion in 'General Precious Metals Discussion' started by fishduck, Apr 21, 2020.

  1. fishduck

    fishduck Active Member Silver Stacker

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    There are some people who just buy gold but there are also people who are looking to make the most out of their cash by buying either silver or gold mining stocks planning to convert it into more gold along the way.

    My question is, which would you say is a better vehicle in achieving this and why?
    Also, if you think its a better idea to just go straight to physical gold and ignore these, why do you think so?

    My personal take on this is:

    Gold Mining Stocks
    Pros
    -If gold goes up, the gains in dollars amplify and you could end up buying a lot more gold than buying physical directly
    -The industry is potentially undervalued due to lack of interest

    Cons
    -It has the same risks as stocks (management risk, political/geopolitical risk, market risk, specific risk etc)
    -Mining stocks are denominated in dollar amounts, so there is currency risk where your dollars lose value
    -Gold could go up but your mining stocks may not
    -Capital Gains Tax when switching to physical gold

    Physical Silver
    Pros
    -It is potentially more undervalued than gold and its value would possibly end up going higher than gold in a bull run, and you end up buying more physical gold than buying directly
    -It is just as physical as gold and is still a precious metal
    -Dollar amount, its more accessible than gold, thus having a lower barrier to entry

    Cons
    -It is also an industrial metal so people might not view it as a safe haven asset and thus its value wont appreciate
    -Silvers performance has been lagging compared to gold and it is possible that this would go on for some time, thus missed opportunities
    -Capital Gains Tax when switching to physical gold

    If anyones willing to share their thoughts and strategies, it would be most appreciated.
     
  2. sgbuyer

    sgbuyer Well-Known Member Silver Stacker

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    My approach to investment is to buy only when stuff are cheap, e.g. silver, platinum and gold (below $1500). Of course, what is cheap can become cheaper, so this approach doesn't work all the time or it may require a lot of patience - waiting for years, possibly a decade or more.

    Gold and silver miners are historically not cheap in terms of PE ratios and dividends (most don't even pay dividend) so I can't bring myself to buy even though I have been reading up on them even before I bought any physical. However, they collapsed in mid March, prices down 40-50% from the 4th quarter of 2019. That's when I made some small purchases of PAAS and GDXJ over a period of about 3 days, and so far, they have gone up by about 50%.

    Mining stocks are very speculative, they are for punting (gambling), so they are not a replacement for physical gold.

    Just for information, when I made the purchases, a lot of analysts were negative on miners saying that the coronavirus may close mines. Yes, some mines were closed, but stock prices still shot up. They may fall back again, but this is what I hope would happen, so I can add more shares. For stocks, research is very important, not all miners are the same. I try to buy companies that have the strongest financials.
     
    Last edited: Apr 21, 2020

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