Precious metals and mining stocks in an economic crisis

I know most silver stackers here believe that due to the world debt levels, that a debt or currency crisis may be imminent. Most of us understand that precious metals, which are seen as a safe haven, go up in bad economic times but what about gold or silver mining stocks? Would they, like other stocks, go down in price in an economic crisis or disaster?

 

In 2008 gfc , pms and their stocks,all fell.
People were selling PMs to cover their losses.

 

There is a strong possibility when a second crash of Stock market, everything will go down including Gold/Silver mining shares. However Physical Gold and Silver may go up instead of down, because the second stock market crash will not be just stock market that crashing but devaluation of currencies (especially USD and Euro), treasury and municipal bond market crash, and another leg down in Real Estate market.

Traditionally when Stock market crash, investors will take their money and run for Bonds, when bonds also crash they'll take their money and run for Foreign or domestic currencies. If currencies also crash, they have NOWHERE else to run to but PM and other hard assets commodities.

I believe when the second GFC occur investors will be forced to run for commodities because everything else is crashing. But mining shares are still shares, they may suffer a mild crash but eventually they will shoot back up.

 

Back in 2008 when stock market crash investors still got Bonds to run to, which they did. Today the world is in sovereign debt crisis, bonds are no good anymore. Neither currencies. There is no where else to go but commodities.

I could be wrong, we just have to wait as see.

 

History is resplete with examples of 'certain' shares doing outstandingly well in times of crisis, as well as in normal times. In some regards it could be due to the fundamentals of the stock chosen, and at other times it could be attributed to frenzy.

One example that I have been researching recently is the nickel miner Poisedon in the late 1960's - early 1970's. It went from $0.80 to $280 in circa a year. Whilst it could be argued that nickel was in demand because of the Vietman war, and the price increased circa 20%, the primary factor in the rise to $280 was hysteria.

To put that amount of $280 into purchasing power, consider that a Valiant station wagon was circa $1200 at the time!

In all honesty, I expect the same to happen this time around with AG/AU shares with it being not uncommon to see $100+ shares within 5 years. We shall see!

 

I agree, if gold does what most of us think it will do, the shares will most likely go troppo and give a guide to a top perhaps.

 

Depends on the crisis....big enough crisis will likely entail your gold and silver mining stocks being requisitioned by the government. But in a non SHTF crisis yes they should go up nicely once people wrap their heads around whats happening.

all the above is just IMO

 

Stocks going up by 350 times in a year. I would be extremely happy with an average 10 or 20 times my current portfolio. 100 times, I would be ecstatic. 350 times, I would be in intensive care.

Actually there was an interview on KingWorldNews failry recently which is driving me crazy trying to find it where Eric mentioned, I think at the start, a few stocks that went from pennies to 100's of dollars within a few years in the late 70's. If anyone knows which interview I'm talking about I would appreciate a link.

Anyway, the end of the 70's was a crisis period in the world economy and we saw what the result was re: gold, silver and their shares. People thought the monetary system was on it's last legs then too. I'll be very disappointed if we don't see something like that again this time around.

EDIT: the nickel story reminds me a lot of the tulip story. Humans haven't changed in 100's of years. One of my favourite sayings "technology advances a lot faster than evolution". Fortunately for us stackers.

 

Perhaps a stock market crash would completely decouple the value of physical gold and silver from the spot price - even with a low spot price I would bet that the street price of physical metal would be high.

 

http://en.wikipedia.org/wiki/Poseidon_bubble

 

This is quite interesting too

Three Australian Asset-price Bubbles
http://www.rba.gov.au/publications/confs/2003/simon.pdf

 

Incidentally, I think there will be a shortage in Silver but that it will have come about much the same way that the housing shortage and subsequent price spike did. Over-speculation.

 

That was during the last gold bullmarket. Many junior mines gone up THOUSANDs folds. Many of these juniors were 10c or 15c (less than penny stock) when the first started and at the end of the bullmarket they were trading at $300-$400 /share.

I believe we will see a repeat performance by many quality juniors. There are many good juniors today that you can still buy under $1.

 

Thanks for the input everyone! I'm deciding whether to move my silver to stocks

 

I think i'll faint if that (100x to 1000x) happens...

 

I did some searching around and reading. This is interesting...

http://www.financialsense.com/contr...rd-pressures-and-the-china-effect?q=node/1466

 

Make sure you have a solid position in Physical metals before going into stocks. And only gamble your "Spare" money in stock market, never gamble the money you can't afford to lose. For some people that may be 2/3 in physical 1/3 in stocks, or even 90% in physical and 10% in stocks. I've spoken to a professional share traders during the Gold Symposium Sydney he went 10% physical and 90% shares. I think that's crazy risky, but what can I say, he is a pro and knows what he's doing.

 

Could we see that kind of performance from Aussie juniors?

 

from my small amount of forex trading experience, one thing i would suggest is more like a ratio of 1:10 or 1:20 of stocks to physical. on forex i found trailing stops to be key to my personal profit strategy, cutting my losers at 10% and letting the winners run until my loss margin was exceeded on a continuous backwards motion. most recent i did a 25% on EUR/USD in a 4 month period.

i am going to get into this market now i think also. it seems logical to me that as fiat proves once again it's unsuitability as currency that producing currency will move to other fields, i might even say that mint and bullion producers could be worth looking at as well?

 

For clarity, following is the official yearly price of nickel from the 'Nickel Institute' Toronto, Canada which appears to show that any spike to 7,000/ton was short lived, with the highest mean % rise of circa 20% in 1969-70 to US$2844.

Average daily price
for the year U.S.A. Average price for the year
Year cents per pound U.S.A. dollars per tonne

1965 0.79 cents 1742
1966 0.79 1742
1967 0.88 1940
1968 0.95 2094
1969 1.05 2315
1970 1.29 2844
1971 1.33 2932
1972 1.40 3086
1973 1.53 3373
1974 1.74 3836
1975 2.07 4564