Gold Stocks Break Out

For gold (and silver) investors, it has been a tough few years.  The metals have been in a bear market since around 2011.  This was after a historic run up.

We have to remember that silver topped out close to $50 per ounce and gold near $1,900 per ounce.  But around the turn of the century, gold was around $300, and silver was around $5.

Silver briefly went parabolic in 2011, so a pullback was inevitable at the time.  We just didn’t know how long it would last.

I don’t know what makes a bear market.  Maybe the last 5 years have been a small bear market within a larger bull market.  Still, 5 years is a lot of time, and investors have gotten hammered, especially if they bought anywhere near the top.

Overall, gold has still fared reasonably well.  That is why it is my top choice for holding a precious metal.  It is more stable than silver.  Silver is far more volatile.  It makes owning silver fun in a bull market, but quite devastating in a bear market.

Nothing has compared to owning mining stocks though.  They have been beat down so hard over the last several years, one could easily be down 80% or more.

They say that when there is blood in the streets, that is the time to buy.  Well, mining stocks have been a disaster over the last several years, so perhaps it was time to buy.

With gold and silver prices inching up in 2016, mining stocks have done well.  If the rising metal prices continue, we should expect continuing price increases in the mining sector.

Just as silver is more volatile than gold, mining stocks are more volatile than gold as well.  Mining stocks are usually more volatile than silver.

I recommend a permanent portfolio that includes gold holdings.  This does not include gold stocks.  Gold and other mining stocks should be left for your speculative portfolio.

I don’t know if there will be another major pullback in mining stocks. If we hit a recession, it could happen.  Ultimately, I am bullish on mining stocks because even if we hit a recession, the Fed won’t be far behind with another round of quantitative easing.

My strategy right now is to own a small percentage in mining stocks. If the Fed hints at more monetary inflation, maybe I will go higher.  Although I say I favor a “small percentage”, it should still be significant enough that it is worth it to you.

Just for example, if your financial net worth is $100,000, I don’t see much point in putting just $1,000 in mining stocks.  First, you will probably need a few percentage points in gains just to offset your trading fees.  And even if your stock or fund triples in price – which is an incredible success as an investor – it is hard to get excited about a $2,000 gain.

So for speculation, I am comfortable recommending 5% towards this speculation, as long as you are comfortable risking this amount.

You don’t have to buy individual stocks.  There are mutual funds and ETFs available.  I don’t see a problem with GDX, GDXJ, or TGLDX.

GDXJ is made up of junior miners, so they are even riskier, but they also offer a bigger potential reward if just a few of the stocks in the fund were to break out.

Again, don’t be surprised if a recession puts a damper on the mining stocks.  But even here, I am encouraged that gold prices have held up, or even gone up, in the face of a falling stock market.  We saw this take place in January.

If you want some risk, dip your toe in the mining sector.  I will buy more when I think the time is right.

Leave a Reply

Your email address will not be published. Required fields are marked *