Precious Metals Investing 101

Reasons to Invest in Precious metals

There are a number of reasons for investing in Silver and Gold:

         - End-of-the-World-as-We-Know-It (EOTWAWKI)

         - Economic Reset

         - Inflation hedge

         - Speculate on Mining stocks

         - Diversify Portfolio

Let’s consider each of these possibilities and how we can invest accordingly


EOTWAWKI / Economic Reset / Inflation hedge

These categories all have the same solution: physical Precious metal under your personal control.

The objective in these scenarios is to preserve wealth across the transition from the existing system into whatever comes next.

History shows us that Gold will always be recognized as a store of value and Silver coinage will always be accepted as a medium of exchange for day-to-day transactions.

Precious metals investing specifically for EOTWAWKI (end of the World as we know it) or Economic Reset assumes that Gold and Silver will continue these roles in the new system.

Whether it is EOTWAWKI or Economic Reset we are preparing for, we have to have our precious metals investment in place ahead of time because there won’t be any announcements made before these events occur.

If (when) these scenarios come to pass, you will either have physical Precious metals in your personal control or you will wish you did.


Structure of a Precious metals Portfolio

The significant question to answer is how the Precious metals Portfolio should be structured.

What percentage of the Portfolio should be allocated to physical Silver?

In a survival situation junk Silver Coins (pre-1965 US silver dimes, quarters, haves) should be widely regarded as money because they are easy to recognize and it is widely known that they contain 90% Silver.



Precious metals Investors are encouraged to start a Portfolio with a foundation of junk Silver Coins.

Add enough Silver and Gold Coins or bars to complete the physical portion of your Portfolio.

Stick with widely recognized Bullion products from the mints of major countries. South African Krugerrands, American Gold Eagles, American Buffalo, Canadian Gold Maple Leafs, Australian Gold Nuggets, United Kingdom Gold Sovereigns, etc.

Avoid numismatic Coins as an investment.

Get a few “pretty” Coins or bars to sit on your desk as overpriced paperweights, but focus the bulk of your capital in the areas where it will gain the highest return.

To get the highest return on your Precious metals investment you want to pay the lowest premium over the spot price of Gold or Silver. On most days that will be Gold Krugerrands and junk Silver.

Refer to my white paper on Mining stock investing for guidance on structuring a Precious metals Portfolio.


Speculate on Mining stocks / Inflation hedge


The stocks of Silver and Gold Mining companies typically magnify the price movements of the Precious metals by 2 to 3 times on both the upside and downside.

Swing traders gravitate to the Mining stock sector specifically because of this volatility.

Long-term Traders and Investors pick Mining stocks as a hedge against inflation and as positioning for an Economic Reset which may be based on Precious metals.

The Satori Traders newsletters provide guidance on building and managing a Portfolio of Mining stocks for both Swing trading and long-term investing.


Diversify Portfolio

An investment in physical Precious metals and the shares of the companies that mine the metals provides diversification for a Portfolio based around the traditional mix of stocks and bonds.

Famous Investors like Mark Mobius and Ray Dalio are recommending a 10% or greater allocation towards the Precious metals.

Numerous market pundits are suggesting that allocations as high as 35% are appropriate given

  • The Geopolitical situation 
  • The restart of Quantitative easing (Q3 2019) by the US Federal Reserve System
  • Approximately $15 trillion (US) global Stimulus (as of mid-May 2020)


Silver vs Gold


The price of Silver tends to move in synch with Gold.

If Gold is making a bullish move higher Silver will follow (or lead at times).

When Gold corrects Silver will grow weak and, most likely, join the correction.

The ratio of the Silver to Gold price is known as the Silver Gold ratio.


As we can see in this Silver to Gold ratio chart, the ratio shows us when Silver is cheap relative to Gold, and vice-versa.


The Silver to Gold ratio today is telling Precious metals investors in the current secular Bull Market trend to favor Silver over Gold.

Silver is historically inexpensive to Gold right now and extremes in the Financial markets are always corrected in time (Mean reversion).

The price of Silver is going to climb along with Gold and the current Silver Gold ratio is going to return to a more historic value.

The combination of these two factors will make the percentage gains in Silver far higher than the gains in Gold.


   

How to Invest in Precious Metals


Physical Makes Up the Foundation

The foundation of a Precious metals Portfolio begins with personal possession of some physical Silver and Gold.

When push-comes-to-shove, if you don’t possess it, you don’t own it.

Get some junk Silver Coins (90% Silver-content Coins minted pre-1965) and 1/10th ounce American Gold Eagle Coins. Tuck these away in your bug-out bag (whatever that means for you).

The amount of physical metal to be held will vary from Investor-to-Investor based on Portfolio size and personal preferences.

Keep in mind that besides being cheap relative to Gold, Silver is heavy. $10,000 worth of Silver at $18/ounce weighs about 35 pounds. In a bug-out scenario only a limited amount of Silver can realistically be transported.

 There are a number of options for storing physical metal that doesn’t fit in the bug-out bag or in-home safe:


  • Safe-deposit box at bank (discreetly check the terms first – some banks specifically prohibit Precious metals)
  • Commercial vault facility – available in many cities – search for “{your city} Precious metals vault”
  • Out in the north forty, third tree to the left, next to the black and white cow…


Expensive Paperweights

Some of the physical metal in our Portfolio should be displayed on the home desk or dresser IMO.

Silver and Gold are beautiful, whether they are in Bullion or numismatic (Coin) form.

When the World is feeling crazy and out-of-control, holding something with widely-recognized value like a US Silver Dollar Coin or Canadian Gold Maple Leaf can be grounding.



Human beings have valued Silver and Gold for thousands of years and that isn’t likely to change any time soon.

I encourage Precious metals Investors to keep a little bit of their Silver and Gold nearby where it can be viewed and handled occasionally.

I prefer US Silver Dollars Coins and hand-poured 5-ounce and 10-ounce Silver bars.


Gold and Silver Bullion vs Numismatic Coins

Get enough numismatic Silver and Gold to satisfy your desire for expensive paperweights.


US $2.50 and $5.00 Indian Head Gold pieces

minted intermittently between 1908 and 1929


Understand that you will pay a premium for this metal and just be OK with it.

Once the “shiny object” urge has been satisfied focus on getting maximum ounces for minimum dollars (lowest premium to the spot price of Gold or Silver).

For Gold that will usually mean buying Bullion Coins like Krugerrands, Canadian Gold Maple Leafs, Vienna Philharmonics, and other Coins produced by national mints.

Silver is almost always cheapest in ‘junk’ form: US 90% Silver dimes, quarters, and halves minted prior to 1965.

100-ounce bars will usually be the next-cheapest way to buy Silver.

Explain to your local Coin dealer or pawn shop that you want whatever she has with the lowest premium to the price of the underlying metal. If they say anything about numismatic coins find another dealer.


Precious metals Mining stocks


There are several categories of Mining stocks.

They are listed below from most conservative to most aggressive.


Dividend Payers

There are a handful of investment-grade precious metals Mining companies that regularly pay dividends.

The shares of these miners play double-duty in a Portfolio by providing the diversification / hedging role while also throwing off some income.


Royalty / Streaming Companies

Because traditional bankers charge exorbitant rates for mine development loans, royalty and streaming companies are able to play the banker or venture capitalist role in the Mining industry.

Mining companies trade a percentage of their future production (a royalty or stream) for cash that can be used to advance existing projects or acquire new ones.

In a Precious metals Bull Market the royalty / streaming Business model is very profitable because the cost of acquiring metal is fixed while its sales price continues to increase.


Producers

Producing miners have demonstrated that they can bring metal to market.

If we limit our investments to these producing miners we significantly reduce our risk.


Near-Producers

Emerging Mining companies will be recognized and rewarded by the market when they come online.

We can invest in these fledgling miners with the expectation that other Investors will buy the company once its new production becomes widely known.


Explorers / Developers

There are well over 2,000 companies in the Precious metals Mining sector.

Most of them can be classified as junior miners or exploration / development companies.

Only a few of these prospectors will ever discover an economically viable mineral deposit and turn it into a producing mine.

Most of these miners will burn through every penny of Investor capital they can get their hands on without ever producing a single ounce of Silver or Gold.

The share price of these companies tends to jump on positive press releases (typically drilling results) and then slowly dwindle back down as Investors lose interest.

Developing a mineral deposit into a producing mine takes multiple years so Investors move on to the next ‘big thing’.

In our Portfolio management we allocate some capital to a select few of these high-risk Precious metals stocks but keep the allocation small.