I feel so strongly about investing in gold and silver that I keep writing about the precious metal sector, even though it goes against my usual philosophy of trying to buy low and sell high. No doubt, the vast majority of the stocks worth owning within the industry have already gone up in value tremendously. This is no big surprise; however, considering the run-up we’ve had in spot prices.
Yet, there really isn’t another industry in the global economy that’s got such rosy fundamentals. And not only that, but if you’re an equity speculator, you typically have to play the market that’s in front of you. If the action is in gold stocks, then that’s where you go. It’s the same as the Internet craze (but not yet as pronounced) on the stock market. Every experienced investor knew the valuations were off the charts, but it didn’t really matter until the sentiment turned. A lot of individual investors made a lot of money during those times.
Now we have an industry that’s awash in cash, has relative high barriers to entry, is benefitting from huge macro forces (a weaker dollar, money-supply-induced inflation, safe-haven status, and a recovering global economy), and is still under-owned by institutional and individual investors. You’ve got to spread your bets in this sector—but make no mistake; the action in gold and silver stocks is going to be good for quite a while.
Both stocks and commodities are due for market corrections, but this won’t be a major shock. When it happens, I’d seriously consider some new stock picking in the best gold and silver companies. Not only is consolidation within the industry accelerating, but also there really isn’t a lot of new production coming on stream, which means that the fundamentals for spot prices will remain strong.
Giving general investment advice is just that—musings about broad market trends. Nobody can predict the future and I don’t try to do so. What I’ve learned over the years, however, is that the trend in capital markets is usually your friend and, for commodities specifically, the price cycle can be decades long. Accordingly, I think both gold and silver prices have a lot further to advance. And that’s without any new potential shocks to the global economy. It’s just with the status quo.
With large amounts of money greasing the balance sheets of established precious metal producers, you know that mergers and acquisitions will take place. You also can bet that a lot of new junior mining companies will try to come to market in the form of new initial public offerings (IPOs). Wall Street types are exceedingly good at feeding a marketplace exactly what it wants, without any care to what happens next. Personally, I think it’s wise to work with a broker that is knowledgeable and does deals in the mining industry. There’s an expertise required in mining (geology, engineering, and finance) that’s unique from other businesses and a good Street analyst can make you money from the sector. Regardless, the global investment business is slowly migrating to the mining sector. This play has a lot more life left in it.