Raptors,

I have yet to address gold and other precious metals.  The delay has largely been driven by the fact I don’t consider gold to be an investment but rather a form of currency.  It doesn’t perform in any real sense, just fluctuates in price versus other currencies (for sometimes poor or even no reasons.)  If you are going to hold gold, treat it as a subset of your currency/cash holdings.  A great hedge to have if markets tank but an anchor around returns during flat or rising markets.

The other precious metals are a little different than gold as they have a broad range of industrial uses and trade like a commodity rather than a currency.  Silver has the most uses but has been in a very long term slump since photography went digital.  The rise of solar voltaic energy might reverse this trend.   Platinum and Palladium are handy and widely used in automotive catalytic converters.  Trading is much more volatile than gold or silver as the only material sources are in Russia and South Africa.  It is a sure bet one or both countries will be experiencing some kind of turmoil more often than not and prices spike as unrest corks mining production regularly.

The Lizard King currently holds a grand whopping total of about $5,000 in gold and (mostly) silver coins.  These make up almost my entire cash allocation as the opportunity cost of not being invested in performing assets right now is quite high.  I’ll be thankful for them if there is a truly catastrophic economic event, but for most part they are a drag on my results that I pay to improve my sleep at night.  I will let all the raptors in a neat trick though.  Whenever you are at the bank doing your regular business, ask the tellers if they have any 50 cent pieces.  I find about 1 out of 200 coins will be from 1964 or earlier and thus contain 90% silver.  You can get hold in your hand silver very cheaply this way with no transaction costs added on top.  I scored 4 coins today but sadly none contained silver.  I currently have 14 silver coins sourced this way.  It builds up over time if you remember to ask every time.

What about gold mining stocks you say?  Well, every now and then, someone gets filthy rich that way.  But most of the time people just lose money.  It is a terrible business to be in.  Gold and other precious metal mining is a capital intensive industry that is a price taker with no potential to build a mote or a brand.  When the commodity price falls, they get hammered and many go bankrupt.  Finance is a much better business and it is possible to do a finance play on the mining industry.  What you want are “royalty streaming” companies.  These companies act sort of like insurance underwriters for miners.  They provide liquidity to get mines up and running in exchange for a percentage of the metal extracted.  There is no fixed asset overhead, striking works, safety issues, environmental permits, or other headaches associated with mining.  Just a diversified portfolio of mining interest that can be acquired when the time is right or otherwise bide your time.  Some examples are Royal Gold (RGLD), Franco Nevada (FNV), and Silver Wheaton (SLW).  The below graphs shows the performance of GLD, the two miners indexes (GDX), (GDXJ), and the three streaming companies already mentioned over two years for reference.

GLD comps

 

The three lines below break even are GLD, GDX (mining index), GDXJ (junior miners index).  The two lines in the black are Franco Nevada and Royal Gold.  You can see they remained attractive during a difficult period for metals.  So if you must invest in metals, streaming companies are the safest way to do it.  Protect your raptor hindquarters.

Devour your prey raptors!

Portfolios and Metals

Never miss another opportunity to devour prey!

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3 thoughts on “Portfolios and Metals

  • May 5, 2015 at 12:34 am
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    True, gold/silver does not provide any sort of income and just sits there. No interest payments, no dividend distributions. That being said, I too hold some gold and silver but as you mentioned consider it a sub-set of my total portfolio value. It is by no means a large portion of my total assets just enough to enjoy as a collection and one day to sell. If anything I can consider part of my emergency cash fund as it is highly liquid and can be unloaded at a moments notice. For my money I’d rather hold physical gold and silver rather than any ETF.

    Reply
  • May 6, 2015 at 8:22 pm
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    Thanks for the info. I never touched gold/silver before.

    It’s a good suggestion “Whenever you are at the bank doing your regular business, ask the tellers if they have any 50 cent pieces.” News to me as well.

    Reply
    • May 6, 2015 at 8:52 pm
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      Half dollars are in low circulation. All the quarters and dimes with 90% silver content got picked over almost immediately after the Fed “clipped” the coins of their precious metal. The process of scavenging is still underway for 50 cent pieces though.

      Reply

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