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Jim McCraigh
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Jim McCraigh is a former commercial banker whose interest in finance and economics began in the early 1970's while still working at the bank. Jim studied the economics of money and banking while in graduate school at Northern Illinois University when a dollar was worth a whole lot more than it... More
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Jim McCraigh
  • Getting Paid To Hold Gold And Silver? 1 comment
    Aug 9, 2012 4:13 PM | about stocks: NEM, HL

    One of the objections some investors have to holding gold (NYSEARCA:GLD) and silver (NYSEARCA:SLV) is that they don't pay interest or dividends. They reason that since cash invested in precious metals earns them a zero rate of return, they'll steer clear of it all in favor of bonds for example. As it turns out, some decent yields can be found in mining companies that few investors ever consider. In fact, some miners actually tie their dividends directly to the price of gold or silver. So in a way, one can be paid to wait until the price of gold and silver rise. Here are two in particular…

    Newmont Mining (NYSE:NEM) was the first to pay dividends linked to the price of gold and has announced that it will increase its dividend for each $100 rise in gold prices. The second-largest producer of gold in the world, Newmont currently yields about 3% at its current price of around $47. If gold rises up over $2000 per ounce later this year, as some predict, it will provide a great return for investors… to say nothing about potential gains in share price.

    Hecla Mining (NYSE:HL) has linked its dividends to the price of silver bullion. Its board has promised that Hecla will increase or decrease its dividend by 1 cent per share for each $5 per ounce move in the average silver price. Hecla took a big hit to its share price late last year when a fatal accident closed its Lucky Friday Mine in Northern Idaho. But, the company remains optimistic that it will resume production there ahead of schedule. The stock, trading for about $4.75 a share now currently yields 1.9%.

    Keep in mind that these dividend policies can cut both ways. Under certain conditions, a sharp drop in the prices of gold or silver could eliminate dividend payments altogether. But, with factors pointing to a slow but sustained rise in precious metals prices over time, the future can be very good to those who do their homework.

    Disclosure: I am long GLD, SLV, NEM.

    Stocks: NEM, HL
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  • Noxgear
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    I wonder what the true price of gold and silver really are, when viewed in terms of making things from them? Much of the recent runup in gold and silver seems to be from a political perspective, and perhaps some influence from the Tea Party positions. They may be right that gold particularly might be a good hedge against profligate spending by the US government, but if the economy begins a steady rise, and we are able to begin paying down our debt, then the hedge will be seen as a super conservative investment strategy, and many will abandon it.
    24 Sep 2012, 03:08 PM Reply Like
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