With the US dollar losing its status as the World's Reserve Currency, investors should probably be looking for ways to hedge their fiat currency risk with hard assets, foreign stocks, and hard currencies. The bailouts and "socialism for the rich" practices of western governments has placed the American dollar directly in the cross hairs of global investing trends in the name of "saving the financial system."
Unfortunately, governments of the western world are almost unilaterally committed to debasement and devaluation of their currencies to drive exports and spur the global economy at this point, which means that investors would be wise to avoid the pending collapse of these currencies by hedging risk accordingly. As Rick Santelli puts it, "gold isn't money, it's better than money."
Here are 4 top gold and silver investments that should help investors avoid many of the bear traps and pitfalls of investing in US dollars. Keep in mind that metals have their own risks, but that these risks do not include massive misplaced monetary stimulus policies of central banksters. These investments should also protect you from the added risks of the paper metal ETFs like the SLV and GLD that many well heeled hedge fund managers believe are simply fudging their numbers and cooking their books. In other words, many people believe that SLV and GLD do not hold the metals that they claim to hold.
Likewise, many of us believe that the central banks of the world are hell bent on printing more and more money even though this has not worked to create any jobs. You can't print jobs when McDonald's (MCD) automates their drive-through or when Amazon (AMZN) eliminates the need for physical stores with human employees. We all love our iPads, but the fact of the matter is that technological innovation streamlines our economy in a way that does not require human beings to produce goods and services.
Additionally, outsourcing and tax loopholes are increasingly moving our mega-corporations offshore while these businesses slowly put small competitors out of business. We still think Bernanke and the other central bankers have misdiagnosed the problems or are on the payroll of the mega-corporations and will continue to debase the currency going forward, so we like the hard asset names right here.
NEM -- Newmont shares have not budged with rising gold prices, but the reserves here are tremendous and offer the best margin of safety in the mining space in my view. This disconnect should be viewed as a gift by investors. Newmont shares are attractively valued at only 13X earnings and at a large discount to the asset value of their proven and probable reserves. Many of the competing gold mining stocks do not have earnings or cash flows yet and are valued at a higher multiple to Newmont's gold in the ground. Eventually, the stock should be revalued higher to reflect the tremendous asset base of their metals deposits.
FCX -- Freeport shares are similar to Newmont in that they offer a large discount to mineral values in the ground and also a low price to free cash flow metric and a low price to earnings multiple. Freeport shares are largely decoupled from the economic headwinds of the global economy because of currency debasement -- in other words, this is a stock that should behave more like a currency, and a currency Ben Bernanke cannot print. Freeport at 8X forward earnings is simply too cheap to pass up, and should find a place in a hard asset portfolio as it will be harder to confiscate these shares than it would be to order the confiscation of gold by central banking officials and Congress.
SGOL -- Gold held in a vault in Switzerland; what could be a more compelling investment in a possible hyperinflation scenario? Maybe nothing aside from silver coins buried with a well drawn out treasure map. I view SGOL call options as my favorite way to play the metals rally because these calls set in a defined stop loss order which is essentially executed overnight no matter what happens to the underlying -- with hard stop orders, an overnight gap down can leave you holding the bag. I view the growing option premium here as a price worth paying because while I am a huge bull on gold and silver, I recognize that these investments carry some risks as well as massive potential reward.
PSLV -- For longer term investors who want the safety and conservative comfort of holding physical silver, PSLV makes a ton of sense. For a small premium of around 15-20%, investors can know for certain that the fund holds the physical metal and not a fictional claim on silver. While the premium seems high, any silver coin or bullion dealer will charge a premium of 10-20% to sell you the physical metal anyways, so in some sense this makes for a good way to hold physical silver in an IRA or in a trust account.