There is a lot of pessimism in precious metals markets right now. Talking heads on TV and internet are projecting that gold will drop below $1,000/oz and that silver will become worthless metal and people will be giving it away for free in just a few months.
It is hard to keep your head cool and remember about the fundamentals. The fundamentals for owning gold and silver are still in place. The Fed and CBs around the world are still printing and I don't see how they can stop debasing their currencies. Look what happened to the markets with just the talk of tapering: Everything crashed. Bond yields on 10 year treasuries spiked to 2.5.
US government is still broke. The $17 trillion debt and $123 trillion in unfunded liabilities did not disappear. The government still runs huge deficit and the Fed has to buy over 60% of treasuries they issue.
If the bond yields go up to say 5%-6%, which is an historical norm, our government's interest payment will be close to 1 trillion a year. Just think about it. The government cannot afford such payments. The Federal Reserve cannot let the interest rates rise.
The currency debasement will continue and when people realize this they will flock into hard assets to protect their savings.
Take example from renowned investors: buy low, when nobody wants it, when there is blood in the streets. Today is the time when nobody wants gold and silver mining companies. Maybe we should look through the discount bin and pick up some of the "cigar butts"?
Here is a story of John Marks Templeton. He was a pioneer in the international mutual funds and a founder of what is known today as Franklin Templeton Investments firm. John Templeton took "buy low sell high" to the extreme. He advocated investing in the stock markets at what he called "points of maximum pessimism." Money magazine in 1999 called him: "arguably the greatest global stock picker of the century."
When World War II began in Europe in 1939 everybody was extremely pessimistic about the future. Many thought Hitler will win the war. Nobody wanted to invest into stocks. Everybody were preparing for the war. John Templeton borrowed $10,000 and bought every single stock which was trading at the NYSE. All stocks were trading below $1 a share at that time. He bought 100 shares of each of the 104 companies which were on NYSE in 1939. US economy recovered after the war and John Templeton made a huge fortune.
I think mining sector (not only precious metals miners) is at or close to the point of "maximum pessimism." Buy them low when nobody wants them.
Another lesson from John Templeton- investors should always diversify. Every business enterprise is risky and mining is especially risky because of its complexity. Investors should diversify among companies, sectors and geography's.
Buying an ETF like gold miners ETF (GDX) or gold mining juniors (GDXJ) should be suitable for most of the investors. I personally prefer to select some of the best companies in the sector and invest a little into each of them. In the silver mining sector I like:Coeur Mining (CDE), First Majestic (AG) and Endeavour Silver (EXK). In the gold sector I own Goldcorp (GG) and Yamana Gold (AUY) .
Disclosure: I am long CDE, EXK, HL, GG, AUY, AG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Nothing in this article can or should be used as an investment advice. Everything stated in this article is a personal opinion of the author. Always do your own due diligence and/or consult your financial advisor.
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