Reinhard

Gold Bulls Should Stay Away from Gold Stocks

There are several factors why sometimes mining shares can be good investments, and sometimes gold itself.
- Falling oil prices have been mentioned above, and more generically, any deflationary wave can be good for mining stocks. Imagine the current period lasts for two years, where gold drops 10% and other prices drop in the aggregate by 20%. Here, mines actually make you money, while gold not. And the observed leverage can change in a hurry.
- Tax considerations, availbility in IRAs, safety of your investment are other considerations. Especially if the U.S. government goes hostile. Under certain circumstances, I rather trust mining executives.
- Mining companies seem risky, but therefore one should receive a "required rate of return" for lending mining companies money for their operations. If not, nobody would lend them eventually. So, if mines make a profit in the long-run, the investor should be able to earn a real return in the long run. Gold itself just preserves its real value in the long-run. In adverse times for gold, e.g. when it went from $850 to $250, large mining companies might not have lost 70% (including dividends), but could hold their ground.

So best is to own mining shares as well as gold, and rebalance occasionally between them.