Are Gold Stocks Worth the Effort?

Aug. 16, 2010 1:22 PM ETGLD, IAU, WPM26 Comments
Bob Kirtley profile picture
Bob Kirtley

SLW compared with gold six year chart 14 August 2010.JPG

(Click to enlarge)

We recently posed this question while re-assessing our silver portfolio and concluded that we were currently not getting the leverage to the metals that investing in the stocks should return given the inherent risks associated with mining operations.

We kick off with the following probe:

Question: What is it that we are trying to achieve?

Answer: Exposure to the Gold Bull Market.

Which vehicle will give the best returns and enable us to maximize our profits?

1.Physical metal
3.Silver producers
4.Options and/or futures trades.

The physical metal in your very own hands negates any third party risk and from time to time does perform better than the stocks as it has done recently, for instance.

The funds, some of which may or may not have the physical metal, track gold prices and are liquid for those who wish to trade on a frequent basis.

The gold producers suffer from the numerous inherent risks of mining but do offer leverage to gold prices, but not on any consistent basis.

The options and/or futures trades can provide wonderful returns but they are risky and can also wipe you out completely.

For a pictorial view of this situation we have plotted some of the investment vehicles available on the chart above and have also thrown in Silver Wheaton (SLW) as it was the outright winner when we performed a similar exercise over at over a six year period. The first observation that sticks out like dogs' balls is that Silver Wheaton has outperformed both gold and the gold producers by a long way and the gold producers have not.

The other point to note is that the leverage of the producers to gold and silver, which was evident when the bull market began in 2001 has now diminished considerably. This lack of leverage

This article was written by

Bob Kirtley profile picture
Bob Kirtley has traded options and stocks since 1980. Bob Kirtley spent many years working on Oil projects including some in Alberta, such as the tar sands installations in Fort McMurray. He lived and worked in many different countries, as that is the nature of the construction business. Planning and cost control are key to a projects success and he tries to apply those disciplines on a daily basis when dealing with investments. His training in such areas as SWOT and Risk analysis can be applied from time to time. His qualifications include being chartered in the United Kingdom, which is similar to that of a Professional Engineer in Canada, along with a Masters Degree in Project Management from South Bank University, London, England. He has been working for a number of years on a full time basis representing a group of investors in England.

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