Sunday , 4 December 2016


Gold & Silver Stocks: Are They REALLY Worth Owning?

If there’s been a worse place to be as an investor over the past few years than gold & precious-metalssilver stocks then I haven’t found it. Over the past three years a diversified basket of these metals and mining companies is down over 65%. In that same time the S&P 500 is up nearly 75%, an enormous difference in performance. Here’s a look at the historical numbers to get a better sense of how they tend to act.

The above introductory comments are edited excerpts from an article* by Ben Carlson (awealthofcommonsense.com) entitled An Opportunity in Precious Metals Stocks?.

Carlson goes on to say in further edited excerpts:

Volatility

…[Below is] a look at how cyclical gold & silver stocks are based on the Vanguard Precious Metals Fund since 1985:

PM b

Volatility is roughly double that of the S&P 500 over this same time frame while the S&P 500 gained almost exactly double the annual returns, 11.20% per year to be exact so gold & silver stocks gave you half the return at double the volatility.

You can get a sense of this volatility by looking at the 5 largest annual gains and losses in the fund:

PM a

It’s basically feast or famine.

I looked at two portfolios

  1. a simple 60/40 portfolio of the total U.S. stock market and the total U.S. bond market and
  2. a portfolio made up of 50% in stocks, 40% in bonds and 10% in gold & silver stocks (so the same 60/40 overall stock/bond ratio)

to see if gold & silver stocks…decrease volatility and increase returns and found that, while this has been true in the past, that the differences are minimal…Here are the results from 1985-2013:

PM c

Adding a 10% allocation to gold & silver stocks did slightly increase the performance and lead to a decrease in volatility. This is most likely a rebalancing and diversification bonus (I assumed an annual rebalance). The correlation between the S&P 500 and the Vanguard Precious Metals Fund was only 0.14, signalling a weak relationship between the two asset classes.

The question investors have to ask themselves is this: Is the ridiculous volatility worth it for the chance to potentially outperform by a slim margin and barely reduce the volatility characteristics of a portfolio?

…For many investors, the higher the volatility, the higher the chance for making dumb mistakes plus there’s the possibility that these stocks could continue to drop. To go from a 65% loss to a 75% loss would mean another 25% fall from here. Things can always get cheaper before they finally turn around and there’s nothing that says these stocks have to follow the same path they’ve taken in the past. The 2001-2007 period made up the majority of the gains in these stocks. Who knows if we’ll ever see that kind of outperformance in the commodities space again. You have to be a very brave investor to add precious metals stocks as a long-term allocation to a portfolio because you could be waiting a long time for them to prove their worth.

Precious metals stocks are sure to test your patience yet I’m sure they also look extremely tempting to many investors after such a huge fall. Decisions, decisions.

Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.

*http://awealthofcommonsense.com/opportunity-precious-metals-stocks/

If you liked this article then “Follow the munKNEE” & get each new post via

Related Articles:

1. NOW Is the Time to Jump Aboard the Gold & Silver Train! Here’s Why

The smart money has been moving into precious metals during dips in recent months as many view the sector as one of the last places to find real value given that stocks, bonds, real estate, and nearly every other asset class, has been inflated to lofty levels by the FED’s easy money policies since 2009. I believe we are witnessing one of the last great buying opportunities in precious metals. When prices start moving higher again, there will be little time to jump aboard the train. The downside risk at this juncture pales in comparison to the upside potential. Read More »

2. Gold Shares Have Bottomed & Will Now Outperform Physical Gold Over Next 5.5 Years

2014 could end up being the turnaround year for precious metals and a bull market ascent could develop in 2015 – especially so in gold shares. Here’s why. Read More »

3. The Most Explosive Turnaround to the Upside — EVER — Is Coming In the Precious Metals Sector

I am 100% confident that 1) precious metals will bottom this year and resume a new leg to the upside, 2) the extreme emotions right now regarding gold and silver are typical at major turning points and 3) all the underlying fundamental, cyclical and technical conditions for a new bull market in gold and silver are in place. Here’s an update on the latest action in gold, silver, platinum and palladium Read More »

4. Gold Stocks Could Jump 100% in the Coming Year – Here’s Why

It’s not crazy to think that gold stocks could easily double from their current levels if you realize the extreme condition the gold-stocks-to-gold ratio is in – and if you know your market history. Let me explain. Words: 336; Charts: 1 Read More »

5. Impending Market Capitulation Phase In Gold & PM Stocks Will Make Millions For Those Who Buy At Bottom

Stocks are pulling back in preparation for one final mind-blowing surge to top off this five-year bull market. Gold, on the other hand, looks like it is setting up for a final bear market capitulation phase where every gold bug finally throws up their hands in disgust and jumps over to the stock market right as it’s putting in a final bubble top. For those…that are sitting in cash, this final capitulation is going to represent one of the greatest buying opportunities of this generation. Read More »

6. Jeff Clark: Are Gold Stocks Still Going to Bring the Anticipated Magic? Yes, Here’s Why

We’re invested in gold stocks not just to make money, but for the chance to change our lifestyles and with their lackadaisical [dare I say dismal] year-to-date performance, one may begin to wonder if they’re still going to bring the magic. [Here are my views on the subject.] Words: 740 Read More »

7. If You’re Interested In Gold Stocks This Article is a MUST Read

Historically, junior mining stocks tend to fluctuate between extreme boom and bust cycles and, given that we just completed a major bust cycle, the setup for a major rally in gold stocks is right in front of us. Those with the courage to buy low, and the discipline to sell during a frenzy, could quite possibly realize 10-bagger or even 100-bagger returns that could be worth a million dollars or more. Hold on to your hat! Read More »

8. Gold Stocks: Likelihood of Making Breathtaking Returns Has Never Been Greater! Here’s Why

We all think the price of gold, the metal, is depressed and is about equal to the total cost of production but when one compares the price of precious metals mining companies to the price of gold bullion, their prices are at historical lows. It seems that the mining shares can only go in one direction…up…but when and by how much? This article suggests it presents the greatest opportunity in 30 years. Look at the charts! Absolutely unbelievable. Read More »

9. Gold Producer Stocks Dramatically Undervalued: Don’t Miss This Blood-in-the-Streets Opportunity

While the waterfall decline in gold stocks is painful for those of us already invested, the reality is that this is a setup we get a shot at only a few times in our investing life. It’s a cruel irony that those who are fully invested are now faced with the buying opportunity of a lifetime; however, it would be a shame for anyone to miss this blood-in-the-streets opportunity. Read More »

10. Here’s How to Choose Gold & Silver Stocks With the GREATEST Chance of Major Returns

Which gold/silver mining companies own quality undeveloped gold and silver deposits in safe stable countries – and are extremely well managed? Such companies offer exceptional value in that they provide the best exposure to a rising precious metals price environment. Below are a number of things to look for when considering an investment in such companies. Read More »

11. Focus on Quality Junior Gold & Silver Companies to Maximize Returns – Here’s Why & How

The outlook for many junior resource companies in 2013 is grim so investors should focus on those who own quality undeveloped gold and silver deposits in safe stable countries. Such companies offer exceptional value in that they provide the best exposure to a rising precious metals price environment – and the assets the world’s mining companies desperately need. [Let me explain.] Words: 1328; Charts: 15 Read More »

12. Check It Out: Gold Stock Manias in 79/80, 82/83 & 95/96 Saw 2,000 – 4,000% Returns – and It Could Happen Again

The timing of this article may seem incongruous given the current weak performance of gold and gold stocks but that was the identical situation in each of the past manias – both the metal and the equities didn’t excel until the frenzy kicked in. The following documentation (exact returns from specific companies during this era are identified) is actually a fresh reminder of why we think you should hold on to your positions – or start accumulating them, if you haven’t already. (Words: 1987; Tables: 7) Read More »