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March 29, 2006
What's better: the miners or the metal?, Wed., Mar. 29, 2006, 4:18 PM
During bull phases of the Gold and Silver metal miners, some traders show their reticence by sticking to owning the metal, which is money. I think that's a mistake. During bull phases, you should spend that money on stock.
You should buy the stock because that's when the operating profits will grow faster than the price of the product these companies produce. Earnings growth drives share prices.
As a case in point, here is my top eight U.S.-listed Silver miners. Silver Miners
As you know, my top Canadian-listed Silver miner is Silvercorp (TSX: SVM).
Note that during the past eight months (July 29, 2005 through today March 29, 2006), the Silver metal jumped +57-pct from ~$7 to ~$11 (rounded off). But the average percentage price gain of these eight major Silver miners is +102-pct.
Ka-ching!
On the flip side, during a bear phase, the share prices will drop faster than the metals price. But who cares unless you are short.
The Silver metal ETF (AMEX: SLV when issued) will become a popular trader. I'll stick with the Silver miners. Pretty soon too, there will be a Silver miner ETF (AMEX: GDM), and you'll find me there.
But I hope many of you decide to buy the SLV because that's going to drive the Silver metal price higher, which in turn will shoot my GDM (or individual silver stocks) even higher.
Posted by Posted by Bill Cara on March 29, 2006 04:18:11 PM | Category:
Discourse
Bill & everyone,
I know that most of your readers are "traders" and not investors but one point I think everyone who trades/invests in the GLD ETF should know is that in America, long term capital gains on GLD are considered gains on a collectible and therefore taxed at the collectibles rate of 28% - NOT the more favorable 15% rate generally used for long term capital gains on equities.
Just something to consider when choosing between the miners and the physical GLD. Most of my financial planner friends have no idea about this.
The GLD prospectus (http://www.streettracksgoldshares.com/pdf/streetTRACKS.pdf) makes specific mention of this on page 27.
Posted by: whoisjohngalt ![[TypeKey Profile Page]](http://www.billcara.com/nav-commenters.gif)
at
March 29, 2006 9:44 PM [link]
Good point whois. . . .
Imagine the silver ETF will be treated the same.
If long term holding, probably better for a retirement account like an IRA, 401, KEOUGH, etc.
Posted by: Seamus at
March 29, 2006 10:34 PM [link]
Bill,
You write : "You should buy the stock because that's when the operating profits will grow faster than the price of the product these companies produce. Earnings growth drives share prices."
operating profits will grow only if the operating cost will rise faster , Is it safe to assume? - maybe.
see also :
Special risks when investing in a mining company
In addition to the usual risks involved when investing in a stock of given company like: mismanagement, corporation frauds, dilutions, Etc. Investing in a mining company carries specific additional risks:
1) Mining is depleting business, the more you mine the less reserves you have, unless you explore and find new reserves fast enough.
2) The revenues are completely dependent on the market price of the metal and the mining company is a price taker.
3) Hedging, some mining companies have sold some of their future production through the futures and derivatives market. They have sold in much lower prices, so higher metals prices do not always translate to higher revenues and higher profits.
4) Geo political risk, as the prices of metals are going up it is tempting for government to increase mining taxes. Under some circumstances mining licenses could be frozen or canceled.
The conclusions are: the price of some gold and silver mining stocks could outperform and give better appreciation then the price of gold and silver, but the risk is also higher. Be sure to do a good research before putting good money into any stock and don't place all your eggs in one basket – diversify.
If a gold or silver company has only one mine or no production at all the situation is even more risky as is the case with exploration companies.
source: Gold and Silver Mining Stocks
Posted by: real1![[TypeKey Profile Page]](http://www.billcara.com/nav-commenters.gif)
at
March 29, 2006 5:28 PM [link]