Gold vs Mining Stocks?

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mas00
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Gold vs Mining Stocks?

Post by mas00 » Sun Apr 26, 2020 10:46 pm

So I've been doing some due diligence and trying to read about gold stocks, and there is a lot of bull talk about miners, NEM, FNV, AEM, KL yadda yadda if your in this conversation these are familiar. Anyways I know these are mining stocks so basically you're investing in a hole in a ground hoping that there is gold, rather than actual physical gold. Are there are other gold stocks or do you straight up buy gold bullion bars? If so, where do you purchase them, how to you cash them out?

Just curious, opinions, feedback. I have never invested in gold just stocks, bonds etf's and mutual funds and right now I'm only holding Mutual funds, ETF's and individual stocks along with cash, which is why I'm interested in gold. I know gold is not a source to make money, but preserve your liquidity.

Thanks in advance for chiming in.

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mokaThought
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Re: Gold vs Mining Stocks?

Post by mokaThought » Sun Apr 26, 2020 10:59 pm

Have you searched the forum? :)
October: This is one of the peculiarly dangerous months to speculate in stocks in. The others are July, January, September, April, November, May, March, June, December, August, and February. —Mark Twain

Dominic
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Re: Gold vs Mining Stocks?

Post by Dominic » Sun Apr 26, 2020 11:08 pm

There's really two ways to view the situation:

1) Gold costs money to store and produces no income. Your return is inflation minus costs plus speculative returns. As such, precious metals equity should do better in the long run.

2) Precious metals equity will be correlated highly with the general stock market, so mining stocks are not an effective diversifier. Instead, hold physical gold to diversify.

I don't hold either, but I'd consider miners before physical gold (in much the same way that I'd consider energy and agriculture stocks before holding commodities futures). I don't necessarily think the second viewpoint is wrong, but it's just not something I would hold.

Trader Joe
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Re: Gold vs Mining Stocks?

Post by Trader Joe » Sun Apr 26, 2020 11:09 pm

mas00 wrote:
Sun Apr 26, 2020 10:46 pm
So I've been doing some due diligence and trying to read about gold stocks, and there is a lot of bull talk about miners, NEM, FNV, AEM, KL yadda yadda if your in this conversation these are familiar. Anyways I know these are mining stocks so basically you're investing in a hole in a ground hoping that there is gold, rather than actual physical gold. Are there are other gold stocks or do you straight up buy gold bullion bars? If so, where do you purchase them, how to you cash them out?

Just curious, opinions, feedback. I have never invested in gold just stocks, bonds etf's and mutual funds and right now I'm only holding Mutual funds, ETF's and individual stocks along with cash, which is why I'm interested in gold. I know gold is not a source to make money, but preserve your liquidity.

Thanks in advance for chiming in.
As an investor, I do not invest my money in either gold or mining. In any form.

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Hawkeye5
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Re: Gold vs Mining Stocks?

Post by Hawkeye5 » Mon Apr 27, 2020 3:55 pm

I am well aware of the bias against gold on this forum.
That said, many years ago (well before my Boglehead days) I invested in several South African gold mine stocks. I've not checked on them in decades and several may not even be existence today. I made some good money, and I lost some good money.
In the mid 80's I started purchasing physical gold and silver. I don't, however, consider these holdings an investment but a store of value. For instance in 1964 I could purchase a gallon of gasoline for .25. Today that same quarter (90% silver) will purchase more than a gallon of gasoline after the price collapse.
Precious metals in the portfolio should be considered insurance against economic uncertainty and a store of value rather than an investment. Whether the price rises or falls, the value of gold and silver seldom changes in real terms relative to tangible products over
longer periods of time. What's really changing is the value of the paper currency used to purchase them. The price of gold in US dollars is not really the price of gold itself; rather, it is the value of the dollar priced in gold. A dollar that was worth a dollar in 1971 is worth less than 17 cents today. More than 80% of the dollar's purchasing power has vanished. Given the explosive increase in the national debt in the last ten years it may well be that the collapse of the dollar is near.
Long story short, if your precious metal investment is anything other than physical bullion, when the dollar fails it will be worth what ever the government decides.

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mas00
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Re: Gold vs Mining Stocks?

Post by mas00 » Mon Apr 27, 2020 4:21 pm

I get the idea of gold, and I didn't know boglehead were against it, which doesn't matter to me. I invest in stocks and bogle is against that too. But basically you're saying even an ETF gold stock like IAU, GLDM, PHYS is worthless because it will depreciate with the dollar.

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Hawkeye5
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Re: Gold vs Mining Stocks?

Post by Hawkeye5 » Mon Apr 27, 2020 4:27 pm

Correct.

gougou
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Re: Gold vs Mining Stocks?

Post by gougou » Mon Apr 27, 2020 4:40 pm

Gold mining company is a leveraged bet on the gold price. This is because all gold mining companies need to pay production costs and they also have risk of not producing enough quantity of gold. Holding gold itself is less risky.

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mas00
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Re: Gold vs Mining Stocks?

Post by mas00 » Mon Apr 27, 2020 4:59 pm

technically yes, but right now while the market is in-between bear and bull, gold and miners and in the middle of a high bull run that I don't see stopping while in the US case, i'm positive we will hit another dip with a 2nd wave of corona cases due to gov openings and housing/mortgage/banking system standing on tooth picks.

cobra911
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Re: Gold vs Mining Stocks?

Post by cobra911 » Tue May 19, 2020 10:37 pm

Gold Mining Stocks have been better than Bullion.... Here is today's result for my 3% share my total retirement portfolio. That's all I was willing to gamble in Gold... and ONLY Mining Stocks. Buying/Selling/Storing Bullion is a PIA in my opinion. Note: Sorry for the jumbled XLS SS... I cut and paste.
Boglehead site makes it too complex to Copy/Paste directly for safety reasons... so I gave up trying to figure it out. The last line is all that matters, but if you are patient you can align the columns to see what the numbers say... especially the "Buy Date" column. Also... all ROTH IRA ... No taxes.
Looking to selling this week maybe? :greedy

GOLD STOCKS IN ROTH IRA
STOCK BUY DATE QTY PUR PRICE TOTAL INVEST CURR PRICE CURR VALUE GAIN/LOSS SHARE GAIN / LOSS TOTAL
AEM - Agnico Eagle Mines 6/11/2018 335 $44.75 $14,991.25 $68.01 $22,783.35 $23.26 $7,792.10
NEM - Newmont Goldcorp Corp (**old symb GG) 6/11/2018 347 $34.18 $11,860.46 $67.38 $23,380.86 $33.20 $11,520.40
GOLD/ABX - Barrick Gold (USD is GOLD - CAD is ABX) 6/11/2018 1140 $13.20 $15,048.00 $28.10 $32,034.00 $14.90 $16,986.00
NG - Nova Gold Resources 6/11/2018 3360 $4.46 $14,985.60 $11.95 $40,152.00 $7.49 $25,166.40

Invested $56,885.31 Current Value $118,350.21 TOTAL $ +/- Profit $61,464.90 % +/- 108.05%

sabtastic
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Re: Gold vs Mining Stocks?

Post by sabtastic » Tue May 19, 2020 11:49 pm

It depends on why you are buying, and what your investment horizon is. If you are looking to replace currency as a source of stable, long term wealth preservation gold bullion is a good bet. IAU/GLD etc do this quite well. Yes, it costs something to hold. Think of it as the world's original negative yielding bond. :D Bogleheads don't like holding bullion for many reasons but mostly because: 1. USD has been "stable" for many years 2. Treasuries are liquid, rock solid and freely available 3. Bonds in general have been in a bull market for almost 40 years and stand to continue increasing in value 4. Most bogleheads are US based and therefore most obligations are in dollars. Given the extreme low interest rates, it is harder to make the case against holding gold etfs instead of treasuries, but as we know, negative interest rates are not fiction.

Gold stocks are a bet and a wild one at that. The idea is if gold jumps way up and stays up, being able to produce the metal will likely yield a significant profit and therefore your investment in mining stocks could 10x your investment or more. It is not really buy-and-hold friendly and timing wise it only jumps up once a decade or so. They also drop fast and stay down for 5 years or more. I personally think it is best to stay away, but there is a lot of potential profit if you are very (very) patient in the style of Peter Schiff. I am just not that patient.

OnTrack
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Re: Gold vs Mining Stocks?

Post by OnTrack » Wed May 20, 2020 12:41 am

One difference between gold mining stocks (or ETFs that hold gold mining stocks) and physical gold (or ETFs that hold physical gold) is the treatment of capital gains if the gains are in a taxable account. Capital gains on physical gold are taxed as collectables, so the tax rate could be more than for gold mining stocks.

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nisiprius
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Re: Gold vs Mining Stocks?

Post by nisiprius » Wed May 20, 2020 6:52 am

I don't see how gold "preserves your liquidity." There is a good deal of friction and delay in buying and selling gold. I can use paper money to buy things in quite possibly a thousand, certainly hundreds of places in my small town.

I couldn't use gold directly to buy anything anywhere. The only way I could buy anything with gold would be a two-step process. The first step would be to carry it to our one coin shop and exchange it for paper money.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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The Man with the Axe
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Re: Gold vs Mining Stocks?

Post by The Man with the Axe » Wed May 20, 2020 12:14 pm

I couldn't use gold directly to buy anything anywhere. The only way I could buy anything with gold would be a two-step process. The first step would be to carry it to our one coin shop and exchange it for paper money.
Our local supermarket will not take payment for groceries in shares of VTSAX either. Nevertheless, we don't typically see that fact used on this forum as an argument against holding VTSAX. And yet this argument comes up again and again with reference to gold, even from some of our most esteemed colleagues.

If an investor wants to allocate some part of their portfolio to precious metals, buying physical gold may not be the best way to accomplish that. Transaction costs (e.g., sales tax and dealer premiums) and storage considerations are among the obvious reasons why. To illustrate: Go to the APMEX website and evaluate your transaction costs on the hypothetical purchase of a one-ounce gold coin for physical delivery to your home address.

On the other hand, an investor who purchases shares of GLDM or AAAU (both currently have an expense ratio of 0.18%) in an IRA or Roth IRA will get exposure to this asset class with relatively low transaction costs. Any investor who did this at any time during 2019 is probably happy with that decision (at least as of the date of this post).

If an investor like the OP is concerned about the tax treatment of a potential investment in a particular ETF or other instrument: The prospectus for that security typically includes a general discussion of U.S. federal income tax treatment of an investment in that particular security. It is a very good place to start. Then talk to your tax advisor if you have questions.

asif408
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Re: Gold vs Mining Stocks?

Post by asif408 » Wed May 20, 2020 12:29 pm

The reason you are hearing bull talk is because gold miners are already outperforming, they've double since September 2018 while US stocks have gone nowhere: http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

I was adding to that fund around August 2018, and I can tell you there wasn't a lot of love for gold miners. The gold mining funds have almost doubled just in the past 2 months, and there was a 6-7 month period in 2016 which they did exactly that, which was preceded by an 80% fall in gold miners from 2011-2015. So you should be prepared for volatility, more often on the negative side than the positive side.

To me, the way to use this asset class is as a rebalancer, and a relatively small portion (maybe 5-10%) to hopefully reduce overall portfolio volatility and maybe increase your return a bit. But you are asking about it after it has doubled in the last year and a half. I would say don't rush in and start small, because you might be disappointed in the short term, this is an asset class that generally spends a lot more time falling than it does rising.

hohum
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Re: Gold vs Mining Stocks?

Post by hohum » Wed May 20, 2020 1:02 pm

Owning gold (physical or ETFs like IAU) has a purpose for stabilizing and diversifying a portfolio. You can see this in the permanent portfolio, the golden butterfly portfolio, and the Ray Dalio portfolios. This is because gold is an alternative reserve currency, blah blah blah.

Gold miners are totally different. I'm not a full-on goldbug, but I grew up in the 1970s and have always been fascinated by it. During the 1970s you could buy South African gold mining shares that paid 25% dividends, and it seemed like they would last more or less forever. Maybe the mines would deplete, but at the same time the price of gold was going up so fast that the value of the reserves was growing, so it was kind of a perpetual motion machine. Until it stopped.

Since then, I've occasionally tried to recreate the magic by buying individual gold mining shares. That never ends well. The usual outcome is that the company is sitting on a literal "gold mine" of reserves, but they can't develop the mine because environmentalists tie them up in court. Then there are cases of fraud like Bre-X. Even if those problems are avoided, it's amazing how fast the cost of production increases once the price of gold starts going up. How is it possible that when gold is $1000 an ounce, the cost of production is $700, but two years later -- at the same mine -- the price of gold is now $1300 an ounce and the cost of production is now $1200 an ounce? That happens a lot. Not to mention that now most productive gold mines that are not in Canada are in 'frontier' countries ...

You can look back at the Fidelity Select mutual funds and see how gold miners have done over time. It's a little like UPRO. UPRO is supposed to deliver 3x the S&P 500, but only delivers 2.2x or whatever because of drag. Well, the miners are supposed to deliver 3x the returns of gold, but a lot of times they don't even deliver 1x.

My opinion is that if you want gold to do what gold does for a portfolio, you want physical gold or paper gold. If you want to speculate in stocks where you can make 10 times your money, you are way better off in technology or biotech where the chance of victory is at least greater than zero ...
55% VOO 20% IAU 15% AVDV 10% EDV

ralph124cf
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Re: Gold vs Mining Stocks?

Post by ralph124cf » Wed May 20, 2020 8:49 pm

An interesting difference between physical gold and a gold mine mutual fund is that with no change in the price of gold, the physical gold loses value due to storage and insurance, while gold mine stocks (and mutual funds) can make money with a constant gold price.

As long as the costs of extraction and smelting are lower than the price of gold, the mining stocks can pay dividends from the profits.

A poster above made an interesting point, in that the extraction costs tend to rise with the rising cost of gold. This is frequently a conscious choice of the company, in that they can make money with lower grade ore with the higher price, so they leave the higher grade ore in the ground, so that they can mine the better ore if/when the price of gold goes down. This allows the company executives to keep their jobs by showing profits even with dropping gold prices.

Ralph

cobra911
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Re: Gold vs Mining Stocks?

Post by cobra911 » Fri May 22, 2020 8:52 pm

This is a VERY interesting/informative series of posts about Gold vs. Gold Mining investing... really good content Thanks.
When I read knowledgeable contributers add things like this :
"A poster above made an interesting point, in that the extraction costs tend to rise with the rising cost of gold. This is frequently a conscious choice of the company, in that they can make money with lower grade ore with the higher price, so they leave the higher grade ore in the ground, so that they can mine the better ore if/when the price of gold goes down. This allows the company executives to keep their jobs by showing profits even with dropping gold prices."

This disturbs me... Mostly because there is no government/SEC over site to protect us investors from this fraud. I have always wondered about the lack of correlation between the price of Gold and Gold Mining Stocks ... almost no "timely" correlation. Maybe this is why?

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